Monetary Policy Instruments and Economic Growth in Nigeria; Realities

This study empirically explored the impact of monetary policy instruments on economic growth in Nigeria from the period 1986 to 2018. Autoregressive distributed lag model (ARDL) was employed for the long run and short run dynamic relationship between each of the policy variables; Money supply, Interest rate and Exchange rate, and the target variable; Gross domestic product. The estimated long run model shows that log of money supply has a positive impact on the log of GDP, Exchange rate in its current period is inversely related to the target variable, while its one period lag positively impacts the target variable. Also, the Interest rate in its current value exerts a positive and significant impact on economic growth in Nigeria. Similarly, in the short run, one period lag of the target positively impacts its current value, while the Exchange rate in its current and one period lag, significantly, exerts a negative and positive impact on economic growth respectively. The error correction mechanism coefficient shows that the speed of adjustment of the variables to equilibrium in the short run is 19%. Therefore, the study concludes that monetary policy instruments are significant in explaining economic growth in Nigeria. Also, it is recommended that necessary measures should be taken by the monetary authority to ensure proper use of the instruments by maintaining favorable interest rate, exchange rate and money supply in to attain the desired level of growth in the economy.