ABSTRACT
The role of monetary policy in sustaining economic growth has been
a highly researched subject. The aim of this study is to examine the
relationship between monetary policy and economic growth in which the past
studies have shown conflicting results in Nigeria. Quarterly time series data
was collected from the Central Bank of Nigeria Statistical Bulletin and Website
from 1981 to 2021. Motivated by the prevalence of misleading inference in time
series occasioned by failure to account for structural breaks in series as
volatile as macroeconomic variables in Nigerian specific studies, this study
sought to find out whether structural breaks matter in studying the response of
Economic growth to monetary policy shocks. The study employed Zivot-Andrews
unit root test with structural break to compare the unit root result with the
conventional ADF result while the Autoregressive Distributed Lag (ARDL) bounds
testing approach is used to investigate the co-integration among the variables
in the presence of structural breaks. Also the impulse response function (IRF)
was employed to determine the response of Economic Growth to monetary policy
shocks in Nigeria from 1981 to 2021. The unit root test shows that failure to
account for structural break in unit root of a volatile series can produce
wrong inference. After allowing for structural breaks, the study finds no evidence
of co-integration relationship between economic growth and monetary policy.
Thus it can be argued that there exists only a short run relationship between
the variables of study. The estimates of the ARDL short run model suggest that
Money Supply (M2) has a significant positive impact on economic growth in the
short run at the selected lag length. However, the estimates show that Net
Credit to Government (NCG) has a negative significant impact on economic growth
in Nigeria. More also, Exchange Rate (EXR), Inflation (INFL) and Maximum
Lending Rate (MLRC) have a positive but insignificant effect on Economic Growth
in the short run. The Impulse response function (IRF) results suggested that
Economic Growth responds negatively to money supply (M2) and Net credit to
Government (NCG) shocks. More also the result shows that Economic growth
respond positively to Exchange rate (EXR) shocks. Furthermore, the Impulse
Response results show that Inflation (INFL) and Maximum Lending Rate (MLRC)
possessed no impact on economic growth as their shocks quickly dies or
converges back to zero. Therefore this study makes
the following recommendations for policy makers and future researchers in
Nigeria: the policy makers in Nigeria should increase the level of broad money
supply in the country since broad money supply lead to economic growth in the
short run. Also the Apex bank in Nigeria should embark on the use of
appropriate monetary policy variables that will address non-performance of
Exchange rate and maximum lending rate in contributing to the nation’s economic
growth.
INNOCENT, I (2024). Modeling The Relationship Between Monetary Policy And Economic Growth In Nigeria: An Application Of The Ardl Approach In The Presence Of Structural Breaks:- Okonkwo, Innocent I. Repository.mouau.edu.ng: Retrieved Oct 30, 2024, from https://repository.mouau.edu.ng/work/view/modeling-the-relationship-between-monetary-policy-and-economic-growth-in-nigeria-an-application-of-the-ardl-approach-in-the-presence-of-structural-breaks-okonkwo-innocent-i-7-2
IKE, INNOCENT. "Modeling The Relationship Between Monetary Policy And Economic Growth In Nigeria: An Application Of The Ardl Approach In The Presence Of Structural Breaks:- Okonkwo, Innocent I" Repository.mouau.edu.ng. Repository.mouau.edu.ng, 29 Apr. 2024, https://repository.mouau.edu.ng/work/view/modeling-the-relationship-between-monetary-policy-and-economic-growth-in-nigeria-an-application-of-the-ardl-approach-in-the-presence-of-structural-breaks-okonkwo-innocent-i-7-2. Accessed 30 Oct. 2024.
IKE, INNOCENT. "Modeling The Relationship Between Monetary Policy And Economic Growth In Nigeria: An Application Of The Ardl Approach In The Presence Of Structural Breaks:- Okonkwo, Innocent I". Repository.mouau.edu.ng, Repository.mouau.edu.ng, 29 Apr. 2024. Web. 30 Oct. 2024. < https://repository.mouau.edu.ng/work/view/modeling-the-relationship-between-monetary-policy-and-economic-growth-in-nigeria-an-application-of-the-ardl-approach-in-the-presence-of-structural-breaks-okonkwo-innocent-i-7-2 >.
IKE, INNOCENT. "Modeling The Relationship Between Monetary Policy And Economic Growth In Nigeria: An Application Of The Ardl Approach In The Presence Of Structural Breaks:- Okonkwo, Innocent I" Repository.mouau.edu.ng (2024). Accessed 30 Oct. 2024. https://repository.mouau.edu.ng/work/view/modeling-the-relationship-between-monetary-policy-and-economic-growth-in-nigeria-an-application-of-the-ardl-approach-in-the-presence-of-structural-breaks-okonkwo-innocent-i-7-2