Impact of Monetary Policy on Economic Growth in Nigeria: 1985-2022

Abstract

The study examined the impact of monetary policy on economic growth in Nigeria, using annual data spanning the period 1985 to 2022. One of the major objectives of monetary policy in Nigeria is economic growth but despite the various monetary efforts that have been adopted by the Central Bank of Nigeria over the years, inflation remains a major threat to Nigeria's economic growth. Despite the increased focus on monetary policy adoption in Nigeria, the country's economic growth remains an issue. High unemployment, low investment, high inflation, and an unstable foreign exchange rate are examples of such issues. These alleged issues are said to have contributed to Nigeria's rapid drop in economic growth. The objective of this paper is to examine the relationship between economic growth, exchange rate, inflation rate, interest rate, and money supply in Nigeria. In this regard, the study employed the Autoregressive-Distributed Lag (ARDL) approach and established a long-run relationship between economic growth and interest rate, inflation, exchange rate, and money supply. Specifically, the findings suggested that in the long run only interest rate has significant effects on economic growth while exchange rate, money supply, and interest rate have a positive relationship with the dependent variable, it was only the inflation rate that has a negative relationship with economic growth in Nigeria. Given the important role of interest rates in promoting economic growth, the study recommends that a significant decrease in interest rates will lead to an increase in the growth of the economy as the reduced interest rate will serve as bait for investors in the Nigerian economy.