Adesoye, A. Bolaji and Maku, Olukayode E. and Atanda, Akinwande AbdulMaliq (2012): Is Monetary Policy a Growth Stimulant in Nigeria? A Vector Autoregressive Approach. Forthcoming in: : pp. 1-24.
Download (171kB) | Preview
This paper critically examines the dynamic interaction between monetary policy tools in stimulating economic growth, as well as stabilizing the economy from external shocks in Nigeria. The paper considered key monetary time series variables and real growth of output in formulating Vector Autoregressive (VAR) models which showed interdependence interaction between the period of 1970 and 2007. The time series properties of the selected variables are examined using the Augmented Dickey-Fuller unit root test and the results revealed that only growth of real output and broad money supply are stationary at levels, while saving, lending and exchange rates were found stationary at first difference. The long-run dynamic interaction was established through the Johansen’s Trace and Maximum Eigenvalue tests. The pair-wise Granger-Causality test conducted showed that the growth rate of real output is not a leading indicator for any monetary variables. Other innovation accounting tests were also carried out like impulse responses function to test for the response of growth in real output to innovation shock on monetary variables. Also, the forecast error variance decomposition (FEVD) is used to decompose the monetary shock on the growth rate of real output in Nigeria. Proper policy recommendations were proffered based on the results emanated from the econometric analyses.
|Item Type:||MPRA Paper|
|Original Title:||Is Monetary Policy a Growth Stimulant in Nigeria? A Vector Autoregressive Approach|
|Keywords:||Monetary policy, Monetary Instruments, Economic growth, VAR, Impulse shock response, Variance decomposition|
|Subjects:||C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C51 - Model Construction and Estimation
C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C32 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes ; State Space Models
E - Macroeconomics and Monetary Economics > E0 - General
E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy
E - Macroeconomics and Monetary Economics > E0 - General > E00 - General
|Depositing User:||Akinwande Atanda|
|Date Deposited:||10. Jan 2012 09:31|
|Last Modified:||16. Sep 2015 00:40|
Akinlo, A. E. (2007). The dynamics of money, output and prices in Nigeria, Paper Presented at the Central Bank of Nigeria 2007 Executive Policy Seminar.
An, L. and Sun, W. (2008), “Monetary Policy, Foreign Exchange Intervention and The Exchange Rate: The Case of Japan” International Research Journal of Finance and Economics.
Bernanke, Ben S., (1986). "Alternative explanations of the money-income correlation," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 25(1), pages 49-99, January
Busari, D., Omoke P., and B. Adesoye (2005): “Monetary Policy and Macroeconomic Stabilization Under Alternative Exchange Rate Regime: evidence from Nigeria”. Union Digest, an Economic and Business Publication of Union Bank of Nigeria Plc. Vol. 9. No 3 & 4, December. http://www.unionbankng.com/busari_.pdf
Busari, T. D. and O. W. Olayiwola (1999) “Stabilization Policy in Nigeria Under Alternative Exchange Rate Regimes: A Postulated Empirical Macro-Model Approach.” Economic and Financial Review (CBN), Vo. 37 No.1: 21-35: March.
Caballero, R. and Corbo, C. (1989), “How does uncertainty about the real exchange rate affect exports?” PPR Working Paper, No. 221. Washington, D.C: The World Bank.
CBN (1996), “Annual Reports and Statement of Accounts”, Central Bank of Nigeria.
Chete, L.N. (1995), “ Exchange Rate Depreciation and Balance of Payments Adjustment: The Nigerian Case”. NISER Individual Research Project Report, NISER, Ibadan
Chuku A. C. (2009). Measuring the Effects of Monetary Policy Innovations in Nigeria: A Structural Vector Autoregressive (SVAR) Approach. African Journal of Accounting, Economics, Finance and Banking Research, Volume 5, No. 5.
Dale S. and Haldane A. , (1993). "Interest rates and the channels of monetary transmission: some sectoral estimates," Bank of England working papers 88. Retrieved from www.bankofengland.co.uk/publications/.../qb930401.pdf
Faust, J. and Rogers, J. H. (2003),“Monetary Policy role in Exchange Rate Behaviour” Journal of Monetary Economics 50, 1107-1131.
Garba (1996), “What Can We Learn From Nigeria’s Experience With the World Bank’s Adjustment With Growth Programme?” In - Beyond Adjustment- Management of the Nigerian Economy (Selected Papers of the 1996 Annual Conference of The Nigerian Economic Society).
Johansen, S. (1997), “Likelihood-Based Interference in Cointegrated Vector Autoregressive Models”, Oxford, Oxford University Press.
Mallick, S. (2010). “Macroeconomic Shocks, Monetary Policy and Implicit exchange rate targeting in India”. www.qass.org.uk/2010-May_Brunel-conference/Mallick.
Montiel, P. (1991), “The Transmission Mechanism for Monetary Policy in Developing Countries”. IMF Staff Papers Vol.38 (1) march pp 83-108
Omotor, D. G. (2007), Monetary policy and economic growth: Theoretical and conceptual issues, CBN Economic and Financial Review 45 (4) 39-67.
Oyejide, T.A (2002), “Monetary Policy and its Effects on the Nigerian Economy”, Nigerian Economic Society – Proceedings of a One-day Seminar on Monetary Policy and Exchange rate Stability, Federal Palace Hotel, Lagos.
Rafiq, M.S. and S.K. Mallick (2008), The effect of monetary policy on output in EMU3: A sign restriction approach, Journal of Macroeconomics (30) 1756-1791.
Sims, C. (1980), “Macroeconomics and Reality”, Econometrica Vol. 48 (January):148.
Sims, C. (1992), “Are Forecasting Models Usable for Policy Analysis?” Quarterly Review, Federal Reserve Bank of Minneapolis:2-16.
Wikipedia (2010): Monetary Policy. http://www.en.wikipedia org/wiki/ Monetary _policy.html