MONETARY POLICY AND ITS IMPACT ON THE GROWTH OF NIGERIA ECONOMIC
- Project Research
- 1-5 Chapters
- Quantitative
- Regression
- Abstract : Available
- Table of Content: Available
- Reference Style: APA
- Recommended for : Educators
- NGN 3000
Background to the Study
Nigeria is still a clear example of a third-world economy in which the expanding economy has some functioning machinery, monetary and fiscal policies that attempt to maintain a balance throughout the whole economy so that growth and development, the ultimate objective of any economy, may be fulfilled.
In general, monetary policy refers to a set of measures intended to manage the value supply and cost of money in an economy in accordance with the degree of economic activity. Monetary policy refers to the credit control measure used by a nation's central bank.
According to Olumechere (2008), monetary policy is a deliberate attempt by the monetary authorities to control supply and credit conditions in order to achieve specific broad economic objectives. Johnson K. (2016) defines monetary policy as the use of central bank control over the money supply as a policy to achieve the goals of general economic policy.
According to Salvin (2011), monetary policy is the employment of open market operations, changes in the discount rate, and other measures available to monetary authorities in order to control the rate of money supply growth. He said that the objectives of monetary policy are relative price stability, full employment, and an adequate rate of economic growth. According to Akatu (2013), monetary policy in Nigeria comprises the activities of the central bank of Nigeria that impact the availability and cost of commercial and merchant bank reserve balances and, in turn, the monetary and credit situation of the economy as a whole. The primary purpose of such action is to guarantee that the long-term demands of a rising economy are met at stable prices throughout time.
The primary objectives of monetary policy are to control inflation, maintain a healthy balance of payments in order to protect the external value of the national currency, and promote an acceptable and sustainable level of economic growth and development. The federal government formulates the policy, which is often presented during budget speeches, but the central bank of Nigeria (CBN) is entirely responsible for its annual execution.
Economic growth imminently Kindleberger (2015) defines development as an inventive process that leads to the structural transformation of a social system, while Friedruan John (2012) defines growth as an extension of the system in one or more dimensions without a change in its structure.
This economic growth is attributable to a quantitative, persistent rise in a country's per-capita production or income, accompanied by an increase in its labor force, consumption, capital, and volume of trade. On the other hand, an economy is considered developed when there is a quantitative and qualitative rise in the quantity and quality of the commodities and services it produces. In their broadest sense, economic growth and development include enhancing the quality of life of the populace and decreasing income disparities.
According to Michael P. Todaro and Stephen C. Smith (2011), development is the process of enhancing the quality of all human lives and capacities by increasing people's standard of living, self-respect, and independence.
In the majority of nations, monetary policy is the responsibility of the central bank. In the case of Nigeria, the sole obligation resides with the Nigerian central bank (CBN). The discretionary control of money stock by the monetary authority entails the growth or contraction of money, altering the interest rate to make money cheaper or more costly based on the current economic climate.
The objective of the examination of monetary policy is to demonstrate how this macroeconomic policy is formed and implemented in reality, especially in an environment characterized by federal government fiscal supremacy and highly liquid banks.
Between April 1992 and March 1976, the use of an aggregate credit limit for specifying the allocation of bank credit was discontinued. During this time, these tools of monetary control functioned less efficiently.
Between 1982 and 1985, when strict economic controls were not properly used to halt the situation's deterioration, it became exceptionally dire. With the implementation of the structural adjustment programmed1 in July 1986, a period of economic adjustment is inevitable. The objective of the economic adjustment process initiated by the federal government in July 1986 was to restructure the federal production and consumption pattern of the economy, eliminate price distortions, reduce the economy's reliance on crude oil exports, and distribute raw materials and consumer goods.
In the course of this study, monetary policy, including its framework and execution, as well as its influence on economic growth from 1930 to 2010 will be examined in depth.
1.2 STATEMENT OF THE PROBLEM
The implementations of monetary policy in the economy during the previous several years were damaging and inconsistent with the demands of economic growth. This issue has imposed pressure on the potential solution-finding process. As a consequence, the structural adjustment program was implemented in the economy and the financial system was liberalized. According to Anyanwu (2013), monetary policy is an important economic stabilization tool that consists of measures aimed to manage and control the amount, cost, availability, and direction of money and credit in an economy in order to accomplish macroeconomic objectives or goals. The difficulty is in implementing a policy that will alleviate economic problems rather than allowing the economy to have low levels of investment, income, and demand and supply.
Another issue is how to rearrange the economy's production and consumption pattern by eliminating price distortion.
Lack of transparency in the separation of financial intermediaries contributes to the power response of the financial system to monetary policy control measures, which is a separate issue. These issues have prompted further solutions.
1.3 OBJECTIVES OF THE STUDY
The main objective of the study is to assess the effectiveness of the monetary policies in Nigeria and its role in returning the economy backs to equilibrium after an inflationary imbalance.
The specific objectives of this study are:
1. To examine the trend and structure of monetary policy in Nigeria.
2. To empirically investigate the impact o monetary policy on Nigeria. economy
3. To evaluate the performance of monetary policy in Nigeria over the years under review.
1.4 RESEARCH QUESTION
The study will be guided by the following question;
- What is the impact o monetary policy on Nigeria economy?
- What is the performance of monetary policy in Nigeria over the years under review?
1.5 RESEARCH HYPOTHESIS
To effectively achieve the above mentioned objectives we adopt a null hypothesis:
HO: The monetary policy instrument does not have significant impact on Nigeria economy.
HI: The monetary policy instruments have significant impact on Nigeria. Economy
1.6 SIGNIFCANCE OF THE STUDY.
Establishing a monetary policy framework in Nigeria that is based on and built upon recent global historical experience should promote economic growth and development. As their execution grew less successful over time, the monetary control measures that rely mainly on credit ceilings and selective credit restrictions progressively failed to accomplish their monetary objectives. The importance of the study are:
1. To ensure the efficient and effective control of the money in the economics.
2. To ensure the achievement of desired national objectives.
3. It influences the direction of economic progress in the country.
4. To find out the effectiveness of monetary policy in achieving economic growth during the period under study (1980-2010).
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