Submit your papersSubmit Now
For Enquiries: [email protected]
IIARD LogoIIARD

Monetary Policy Transmission Mechanisms and Domestic Real Investment in Nigeria: A Time Series Study 1981-2015.

Lucky Anyike Lucky & Uzah Cheta Kingsley

Abstract

This study examined the effects of monetary policy transmission mechanisms on the domestic real investment in Nigeria. Time series data were sourced from Central Bank of Nigeria statistical bulletin from 1981 to 2015. Domestic real investment was modeled as the function of percentage of credit to private sector to gross domestic product, naira exchange rate per US dollar, maximum lending rate, monetary policy rate, prime lending rate, net domestic credit, savings rate and Treasury bill rate. Granger causality test and Johansen co-integration test in the vector error correction model (VECM) setting were employed. Durbin Watson, ? Coefficient, R-Square (R2) and F-Statistics were used to determine the relationship between the dependent and independent variables as formulated in the regression models. The result proved that CPS/GDP, MLR, MPR, NDC and SR have positive relationship with Nigeria real domestic investment while EXR, PLR, and TBR have negative relationship with domestic real investment. The cointegration test proved the present of long run relationship between monetary policy variables and domestic real investment. The ADF test prove that the variables are stationary at first difference, the granger causality test proved both bi-directional, uni-directional and independent relationship running from the independent variables to the dependent variable and from the dependent variable to the independent variables. The error correction model proved that the speed of adjustment is adequate while the parsimonious error correction model proved that MPR and SR have positive relationship while EXR and PLR have negative relationship. From the regression summary, the study concludes that monetary policy transmission mechanism has significant relationship with Nigeria domestic real investment. We recommend that Interest rate management and reactions to domestic real investment must be factored into the management and formulation of monetary policy in Nigeria and instituti

Keywords

Monetary policy transmission mechanismDomestic Real InvestmentInterest rate channelcredit channelexchange rate channelasset price channel.

References

Adebole, S.S. and Dahalan, J. (2012). Capital Mobility: Application of Saving-Investment Link for Tunisia. International Journal of Economics and Financial Issues, 2(1), 1-11. Adelowokan O.A, Adesoye A. B., & Balogun O. D (2015). Exchange Rate Volatility on Investment And Growth in Nigeria, an Empirical Analysis. Global Journal of Management and Business Research, 5(10),1-11. Akeju , K., ( 2014). Real Exchange Rates, Terms of Trade and Economic Growth in Nigeria (1980-2012). Journal of Economics Theory 8 (2), 19-23. Amer, S., Umer, R., and Muhammad, A., (2014). Economic Determinants of Domestic Investment: A case of Pakistain. Global Journal of Management and Business Research: B Economics and Commerce, Economic Determinants of Domestic Investment: A Case of Pakistan 14 (7), 1- 7. Ando, A. , and Modigliani, F., (1963). The „Life Cycle? Hypothesis of Saving: Aggregate Implications and Tests. American Economic Review, 53 (March 1963), 55–84. Baddeley, M. C. (2003). Investment: Theories and Analysis. London: Palgrave. Bakare A.S (2011). The Consequences of Foreign Exchange Rate Reforms on the Performances of Private Domestic Investment in Nigeria. International Journal of Economics and Management Sciences,1(1), 25-31 Bernanke, B. S., and Gertler, M., (1995). Inside the Black Box: The Credit Channel of Monetary Policy Transmission. Journal of Economic Perspectives, 9(4), 27–48. Boivin, J., Kiley, M. T., and Mishkin, F. S., (2010). How Has the Monetary Transmission Mechanism Evolved OverTime? Finance and Economics Discussion Series Divisions of Research & Statistics and Monetary Affairs Federal Reserve Board, Washington, D.C Brainard, W. C and Tobin, J., (1968). Pitfalls in financial models buildings. American economic review, 58(2), 99-122. Chakrabarti, A. (2006). The Saving-Investment Relationship Revisited: New Evidence from Multivariate Heterogeneous Panel Cointegration Analyses. Journal of Comparative Economics 34, .402-429. Chirinko, R. S. (1993). Business fixed investment spending: Modelling strategies, empirical results and policy implications. Journal of Economic Literature 34, 1875-1911. Chowdhry A, Wheeler M (2008). Does Real Exchange Rate Volatility Affect Foreign Direct Clak, J. M., (1917). Business accelerator and the law of demand: A Technical factor in economics cycles. Journal of political economy, 25(1), 217-235. Delke, R. (1996). Savings-Investment Associations and Capital Mobility on the Evidence from Japanese Regional Data. Journal of International Economics, 41, .53-72. Dixit, A. K. and Pindyck, R. S. (1994). Investment under Uncertainty. Princeton: Princeton University Press. Eisner, R., and Strotz, R. H., (1963). Determinants of business investment, impact of monetary policy. Englewood cliffs, prentice-hall. Eklund, J. E.,(2013). Theories of investment. A theoretical review with empirical applications. Swedish enterpreneureship forum working paper,2013:22. Enang, B.U. (2010). Macroeconomic Reforms, Government Size and Investment Behaviour in Nigeria: An Empirical Investigation. Journal of Sustainable Development in Africa, 12(1). Engle, R. and Granger, C. (1987). Cointegration and VAR representation: estimation and testing. Econometrica, 55, 251-276. Ezirim, B.C., (2005). Finance Dynamics Principles, Techniques & Applications. Markowitz Centre for Research & Development Port Harcourt. Fazzari, S. M., Hubbard, R. G. and Petersen, B. C. (1988). Financing Constraints and Corporate Investment. Brookings Papers on Economic Activity, 1, 141-195. Feldstein, M. and Horioka, C. (1980): “Domestic Saving and International Capital Flow. Economic Journal, . 90, .314-329 Friedman, M. (1968). The role of monetary policy. American Economic Review, 58 Gertler, M., and Gilchrist, S., (1994). Monetary Policy, Business Cycles, and the Behavior of Small Manufacturing Firms. The Quarterly Journal of Economics 109(2), 309–340. Gomez, M.A (2000).Exchange Rate Volatility Effects on Domestic Investment in Spain (1980- 1998). Anales de Economia Aplicada Granger, C.N.J., (1969) Investigating casual relationship by Econometrics models and cross- spectral methods. Econometrica, 37, 424 – 438. Hayashie, F., (1982). Tobin?s Marginal and average Q: A Neoclassical interpretation. Econometrica, 50(1), 213-224. Hussein, K.A. (1998). International Capital Mobility in OECD Countries: The Feldstein-Horioka Puzzle Revisited. Economic Letters,.59, 237-242. Intriligators, M. D., (1971). Mathematical optimazations and economic theory, prentice hall, London. Investment? Evidence from Four Developed Economies. Int. Trade J., 22(02). Ishioro, B. O., (2013). Monetary Transmission Mechanism in Nigeria: A Causality Test: Mediterranean Journal of Social Science; 4(13), 377-388. Iyoha, M. A.(2004).Macroeconomics:Theory and Policy.Benin City: Mindex Publishing Jansen, W.J. (1996). Estimating Saving-Investment Correlation: Evidence for OECD Countries Based on an Error Correction Model. Journal of International Money and Finance,.15(3),749-781. Jayaraman, T.K. (1996). Private Investment and Macroeconomic Environment in the South Pacific Island Countries: A Cross-Country Analysis, Occasional Paper No.14, Asian Development Bank, Manila Jhingan, M.L., (2005).The Economic of Development and Planning, 38th Ed. New Delhi: Virade Publications (P) Ltd, India. Johansen, S., (1988).Statistical Analysis of Cointegration Vectors. Journal of Economic Dynamics and Control, 12 (2 &3), 231–254. Jorgenson, D. W. (1971). Econometric studies of investment behaviour: A survey. Journal of Economic Literature, 9 (4), 1111-1147. Jorgenson, D.,(1963). Capital theory and investment behavior. American economic review, 53(2), 247-257. Junankar, P. N. (1973). Investment: Theories and Evidence. London: Macmillan. Kanagaraj, A., & Ekta, S. (2011). A Firm Level Analysis of the Exchange Rate Exposure of Indian Firms. Journal of Applied Finance & Banking, 1(4), 163-184. Kasuga, H.(2004). Savings-Investment Correlations in Developing Countries. Economic Letters,.83,.371-376. Ketenci, N. (2012). The Feldstein-Horioka Puzzle and Structural Breaks: Evidence from EU Members. Economic Modeling. 29 (4), 262-270. Keynes, J. M. (1973). The Collected Writings of John Maynard Keynes. London: Macmillan. Kim, S., Kim, S.H., and Wang, Y. (2007). Saving, Investment and International Capital Mobility in East Asia. Japan and World Economy, l.(19).279-291. Krol, R. (1996). International Capital Mobility: Evidence from Panel Data. Journal of International Money and Finance,.15(3),.467-474. Lucas, R. E., (1967). Adjustment costs and the theory of supply. Journal of political economy. 75(4), 321-334. Lucky, A. L., and Uzah, C. K., (2016). Determinants of Capital Formation in Nigeria: A Test of Jhingan?s Preposition 1981 – 2014. IIARD International Journal of Banking and Finance Research, 2 (1), 1 – 19. Mamingi, N. (1997). Saving-Investment Correlations and Capital Mobility: The Experience of Developing Countries. Journal of Policy Modeling, 19(6),605-625. Manalo J., Perera D. and Rees D. (2014). Exchange Rate Movements and the Australian McKinnon, R. I. (1973). Money and Capital in Economic Development. Washington D.C.: Brookings Institution. Mishkin, F.S., (1995). Symposium on the Monetary Transmission Mechanism. Journal of Economic Perspectives. 9 (4), 20 – 36. Mishra, P.K., Das, J.R., and Mishra, S.K. (2010). The Dynamics of Savings and Investment Relationship in India.” European Journal of Economics, Finance, and Administration Sciences, 18, 164-172 Morgan, D. P., (1981). The Credit Effect of Monetary Policy: Evidence Using Loan Commitments. Journal of Money, Credit and Banking 30(1): 102–118. Mueller, D. C and Rearadon, E., (1993). Rates of returns on corporate investment. Journal of Post Keynesian Economics 13 (3), 366

More Articles from INTERNATIONAL JOURNAL OF ECONOMICS AND FINANCIAL MANAGEMENT

Bridging Legal, Financial, and Data Governance in Enterprise AI: Emerging Trends

Author: Funmilayo Ashore-Onisemo, Ebehiremen Faith Iziduh, Uchechi Mary-Linda Unamma, Ifeanyichukwu Jeffrey Okwesa

Macroeconomic Policies and Economic Stability in Nigeria

Author: Abel-Tariah Emmanuel Onate, Okon, Ekanem Nsikhe, Nwenyi Francis Onwe

Determinants of Bank Liquidity in Nigeria

Author: Nelson Johnny Ebifemo-ere Stephen