MONETARY POLICY INSTRUMENTS AND ECONOMIC DEVELOPMENT: EVIDENCE FROM NIGERIA

Abstract

The study assessed how instruments of monetary policy such as Treasury bill rate, monetary policy rate, cash reserve ratio, liquidity ratio and money supply affect economic development in Nigeria. The data from the study which were sourced from the several issues of annual report and statement of account of Central Bank of Nigeria covered the period, 1986-2021. Utilizing co-integration and error correction model, the study found presence of long run equilibrium relationship between the dependent and the explanatory variables. Specifically, the study found that in the long run cash reserve ratio and money supply had significant positive impact on human development in Nigeria. On the other hand, the study found that economic development is significant and positively responsive to changes in treasury bill rate, level estimation of monetary policy rate as well as cash reserve ratio contrary to its significant negative response to changes in money supply in the short run. On the bases of the findings therefore, the study recommended that a better manipulation of the aggregate money supply in order to achieve the desired policy targets most especially in the short run period. Also, the study suggested that MPR should be used to adjust interest rate policy through minimum rediscount thereby preventing interest rate from being an obstacle to growth of both private and public investment in Nigeria.