Monetary Policy and Economic Growth in Nigeria: An Autoregressive Distributed Lag Approach

Abstract

This study examines the effect of monetary policy on economic growth in Nigeria. The study employed annual time series data spanning from 1988 to 2022 while the ex-post facto research design was used for the study. A stationarity test was conducted on the variables using the Augmented Dickey Fuller (ADF) and Phillips-Perron test. The Auto-Regressive Distributed Lag (ARDL) was used for the data analysis while diagnostic test like Histogram Normality Test, Heteroskedasticity Test, Ramsey RESET Test and CUSUM Test of Stability were also conducted for the study. The findings from the long-run analysis reveals that Treasury bill rate, Exchange rate and Money supply has a positive and significant effect on the Gross Domestic Product while Inflation rate has a negative and significant influence on the Gross Domestic Product. On the other hand, Interest rate has a negative and insignificant effect on the Gross Domestic Product. Based on the findings, the study concludes that monetary policy has significant influence on economic growth in Nigeria. Therefore, the study suggests that the Central Bank of Nigeria should use the relevant monetary policy to control the money supply. If properly implemented, it will have a multiplier effect on inflation rate.

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