An empirical analysis of the impact of monetary policy on economic development in nigeria (1985–2011)

Project Abstract

This research paper aims to conduct an empirical analysis of the impact of monetary policy on economic development in Nigeria from 1985 to 2011. The study focuses on investigating the effectiveness of monetary policy tools employed by the Central Bank of Nigeria (CBN) in influencing economic development indicators such as GDP growth, inflation rate, exchange rate stability, and unemployment rate. The period under consideration, 1985 to 2011, covers significant events in Nigeria's economic history, including periods of economic booms and busts, policy reforms, and external shocks. By analyzing this timeframe, the research seeks to provide insights into the long-term effects of monetary policy decisions on the overall economic development of the country. The research methodology involves utilizing time-series data on key macroeconomic variables such as money supply, interest rates, inflation, exchange rates, GDP growth, and unemployment. Econometric techniques such as regression analysis, vector autoregression (VAR), and error correction model (ECM) will be employed to analyze the relationship between monetary policy variables and economic development indicators. The study hypothesizes that the effectiveness of monetary policy in promoting economic development in Nigeria is influenced by factors such as the credibility of the central bank, external shocks, fiscal policy coordination, and structural characteristics of the economy. By testing these hypotheses, the research aims to provide a nuanced understanding of the dynamics between monetary policy and economic development in Nigeria. The findings of this research are expected to contribute to the existing literature on the role of monetary policy in economic development, particularly in the context of developing countries like Nigeria. The implications of the study are relevant for policymakers, central bankers, economists, and other stakeholders involved in shaping economic policies in Nigeria and similar economies. Overall, this research seeks to provide a comprehensive analysis of the impact of monetary policy on economic development in Nigeria over the period 1985-2011. By examining the effectiveness of monetary policy tools and their implications for key economic indicators, the study aims to offer valuable insights for policymakers and researchers interested in understanding the relationship between monetary policy and economic development in Nigeria.

Project Overview

<p> </p><div><p><strong>INTRODUCTION</strong></p><p>1.1 &nbsp; BACKGROUND OF THE STUDY</p><p>One of the major issues which have occupied the mind of government for years is the impact of monetary policy as a tool for price stability in Nigeria. Despite the lack consensus amongst the economy, there is remarkable strong agreement that monetary policy as an economystabilizing measure in Nigeria refers to the persistence rise in the general price level.</p><p>Monetary policy is one of the macroeconomic policies available for managing the economy. It is however important today because its effects on economic aggregates such as price, output, interest rates and exchange rates. In most countries, the central bank is saddled with the responsibility of conducting monetary policy. In the case of Nigeria, the responsibility entirely lies with the Central Bank of Nigeria (CBN). The discretionary control of the money stock by the monetary authority involves the expansion and contraction of money, influencing interest rate to make money cheaper or more expensive depending on the prevailing economic situation.</p><p>1.2 &nbsp; STATEMENT OF THE PROBLEM</p><p>The monetary policy implemented in the economy over the past years has been detrimental and inconsistent with developmental needs of the economy (Apata J.T, 2007). This concern has exerted pressures on the monetary authorities in Nigeria to re-examine and re-evaluate their monetary policies with the view of finding possible solutions. As a result of this, the Structural Adjustment Programme (SAP) as introduced in Nigeria in 1986 in order to correct the structural imbalances in the economy and to liberalize the financial system.</p><p>Despite various actions used by the monetary authorities in administering monetary policy in Nigeria, there are still limits to the effectiveness of monetary policy. There has been a wide discrepancy between target and outcome due to the fact that the central bank has not been able to achieve the various objectives it set out for itself. For instance, there has been a problem hitting inflation target. The inflation target in 2008 was 7% but the performance was about 19%.</p><p>Nigeria needs an effective, efficient, sound and consistent monetary policy that has a positive effect on interest rate, employment and real output, so as to minimize the economic problems disturbing Nigeria as a developing country</p><p>1.3 &nbsp; RESEARCH QUESTIONS</p><p>What is the effect of monetary policy on price stability in Nigeria?</p><p>To what extent do the instruments of monetary policy control inflation in Nigeria?</p><p>What are the contributions of monetary policy towards developing</p><p>Nigeria?</p><p>1.4 &nbsp; OBJECTIVES OF THE STUDY</p><p>This study seeks to achieve the following objectives;</p><p>I. &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; To determine the impact of monetary policy on inflation in</p><p>Nigeria.</p><p>II. &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; To empirically examine the effectiveness of monetary policy on economic stability in Nigeria.</p><p>III. &nbsp; &nbsp; &nbsp; To analyze the contributions of monetary policy towards promoting growth and development of the Nigerian economy.</p><p>1.5 &nbsp; RESEARCH HYPOTHESIS</p><p>The hypothesis to be tested in the course of this research work is stated below;</p><p>H1 = Monetary policy has significant impact on inflation in Nigeria.</p><p>H2 = Monetary policy has no significant impact on inflation in Nigeria.</p><p>1.6 &nbsp; SIGNIFICANCE O THE STUDY</p><p>This study is significant in the following ways;</p><p>I. &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; It would provide an objective view of the effectiveness of the monetary policy in Nigeria.</p><p>II. &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; It would provide an economic basis upon which to examine the effect of monetary policy on the Nigerian economy.</p><p>III. &nbsp; &nbsp; &nbsp; It would provide policy recommendations to the policy makers on ways to make the Nigeria economy vibrant through the monetary policy.</p><p>1.7 &nbsp; SCOPE OF THE STUDY / LIMITATION OF THE STUDY</p><p>This study will focus on major growth and development components which are vital parts of monetary policy. The study will also empirically examine the effectiveness of monetary policy in the Nigerian economy. Factors that affect smooth execution of the project include inadequate finance and short time.</p></div><h3></h3><br> <br><p></p>