Shadow Banking and Central Bank’s Growth Support Initiative in Nigeria: Facts and the Evidence

Abstract

The empirical evidence about shadow banking and central bank’s monetary intervention to improve liquidity in Nigeria remains largely anecdotal. However, the role played by both in the build-up to and aftermath of the 2007 – 2009 global financial crises, mostly in the advanced economies is thoroughly acknowledged in the literature. This paper investigates the dynamic relationship between shadow banks in Nigeria and central bank’s monetary policy, using the ARDL Bounds testing approach to cointegration. The study reveals the existence of a short run associationship, but not so in the long run which reveals the absence of a standard condition, implying little or no relationship between shadow monetary policy and shadow banking. This study, therefore, recommends that the central bank continues to be innovative in the ways shadow banks are incentivized in order to improve financial inclusion.

Keywords: Shadow Banking, Shadow Monetary Policy, ARDL Cointegration, Error-Correction, Growth Supporting Intervention, Bounds Test, Financial Inclusion,

JEL Classification: G20, G21, G22, G23, G28