An Analysis of the Effects of Monetary Policy on Nigerian Economy

Abstract

This study examined the effects of monetary policy in Nigeria economy. The effect of monetary policy is a central issue and has attracted a lot of comments both in and out of the country. The theories of monetary policy became success during 1930’s and 1940’s. It was believed that the well being of monetary policy in stimulating recovery from depression was severely limited than in controlling a boom and inflation. These views emerged from the experience of Keynes in his theory. Keynes general view holds that during depression, the CBN can increase the reserve of commercial banks through a cheap monetary policy. They can do so by buying securities and reducing the interest rate. As a result of these, the ability of extending credit facilities to borrowers increases. But the great depression tells us that in a serious depression when there is pessimism among economic actors, the success of such a policy is practically zero. In this situation economic actors have no incentives to borrow even at a reduced interest rate. In this case, the question of borrowing for long-term capital needs does not arise in a depression when the business activities are already at a low level.

Key Words: Monetary Policy, Fiscal Policy, Nigerian Economy, Economy