AN EMPIRICAL ANALYSIS OF THE IMPACT OF MONETARY POLICY ON ECONOMIC DEVELOPMENT IN NIGERIA (1985–2011).

AN EMPIRICAL ANALYSIS OF THE IMPACT OF MONETARY POLICY ON ECONOMIC DEVELOPMENT IN NIGERIA (1985–2011).

Chapter one

INTRODUCTION

1.1 Background of the Study

The impact of monetary policy as a weapon for price stability in Nigeria has been a major concern for the government for many years. Despite the lack of unanimity within the economy, there is remarkable high agreement that monetary policy as an economic stabilising strategy in Nigeria refers to the persistent rise in the general price level.

Monetary policy is one of the macroeconomic policies used to manage the economy. It is still relevant today because of its impact on economic aggregates such as price, production, interest rates, and currency rates.

In most countries, the central bank is responsible for monetary policy. In Nigeria, the obligation is solely with the Central Bank of Nigeria (CBN). The monetary authority’s discretionary control over the money supply includes expanding and contracting money, changing interest rates to make money cheaper or more expensive based on the current economic scenario.

1.2 Statement of the Problem

The monetary policy implemented in the economy in recent years has been damaging and inconsistent with the economy’s developmental demands (Apata J.T., 2007).

This worry has prompted Nigeria’s monetary authorities to reconsider and re-evaluate their monetary policies in order to uncover potential answers.

As a result, the Structural Adjustment Programme (SAP) was implemented in Nigeria in 1986 to address structural imbalances in the economy and liberalise the banking sector.

Despite the many efforts taken by Nigeria’s monetary authorities to administer monetary policy, monetary policy’s effectiveness remains limited. There has been a significant disparity between target and outcome since the central bank has been unable to meet the numerous goals it has set for itself.

For example, there has been a problem meeting the inflation objective. In 2008, the inflation objective was 7%, but the actual performance was almost 19%.

Nigeria needs an effective, efficient, sound, and consistent monetary policy that has a favourable effect on interest rates, employment, and real output in order to minimise the economic issues that Nigeria is facing as a growing country.

1.3 RESEARCH QUESTIONS.

What influence does monetary policy have on price stability in Nigeria?

How effectively do Nigeria’s monetary policy instruments control inflation?

What are the contributions of monetary policy to development?

Nigeria?

1.4 Objectives of the Study

This study aims to achieve the following objectives:

I. Identify the impact of monetary policy on inflation in

Nigeria.

II. To empirically investigate the impact of monetary policy on economic stability in Nigeria.

III. To examine the contributions of monetary policy to the growth and development of the Nigerian economy.

1.5 Research Hypothesis

The hypothesis to be tested in the course of this study endeavour is as follows:

H1: Monetary policy has a considerable impact on inflation in Nigeria.

H2: Monetary policy has no major impact on inflation in Nigeria.

1.6 Significance of the Study

The study is relevant in the following ways:

I. It would provide an objective assessment of the effectiveness of Nigeria’s monetary policy.

II. It would give an economic foundation from which to investigate the impact of monetary policy on the Nigerian economy.

III. It would give policy suggestions to policymakers on how to stimulate the Nigerian economy through monetary policy.

1.7 The Scope and Limitations of the Study

This study will concentrate on key growth and development components that are critical components of monetary policy. The study will also investigate the effectiveness of monetary policy in the Nigerian economy. Inadequate funding and a tight timeline are two factors that can impede the project’s successful execution.