Effectiveness Of Monetary Policy In Stimulating Economic Growth In Nigeria

ABSTRACT

Effectiveness of monetary policy in stimulating economic growth

This study investigates the effectiveness of monetary policy in stimulating economy

growth in Nigeria using AK production Function and Vector Autoregressive (VAR) model.

The empirical evidence depicts that economic growth in Nigeria is influenced by money

supply, electric power consumption, gross fixed capital formation and trade openness. This

shows that monetary policy is effective in maintaining economic growth on the long run. The

impulse response function revealed that economic growth (GDP) respond to itself and does

not respond to other variables like Consumer Price Index (CPI), Broad Money Supply (M2),

Interest Rate (IR), Exchange Rate (ER) in some period, while in some period economic

growth (GDP) respond to itself and other variable. The Granger causality test showed that

there exist unidirectional, bilateral and independence causality. Thus Nigerian government

through its monetary authorities should fine-tune the economy by incorporating other

policies that will influence economic growth not only in the long run but also, in the short

run period. This will go a long way in contributing to higher sustainable economic growth.