Behavioral Pattern of Monetary Policy Variables and Effects on Economic Growth: An Econometric Investigation of Nigeria.

Abstract

This paper established that interest rate, inflation, and money supply had negative effects on Nigeria’s economic growth in the short run, while in the long run; exchange rate had significant positive effects. A combination of Breusch-Godfrey Serial Correlation, White Heteroskedasticity, Ramsey Reset, Dickey-Fuller unit root was used for preliminary analysis. Ordinary Least Square (OLS) was used for short run estimate, while a combination of Johansen Co-Integration, Granger Causality Tests and impulse response analysis were used for long run estimation.  Our model shows that the four monetary policy variables have 88% joint probability of affecting level economic growth as well as explained 84% of economic growth Nigeria experience for the period 1980-2012.  The paper concludes that for sustainable economic growth to be achieved, monetary authority must devise short term strategies to manage periodic  volatility in interest rate, money supply and inflation, while medium and long term strategies must be adopted to stabilize the value of the domestic currency.

Keywords: Economic growth, monetary policy, interest rate, inflation, money supply, exchange rate.