An Assessment of the Effectiveness of Open Market Operations Instrument of Monetary Policy Management in Nigeria

Abstract

This study empirically examined the effectiveness of Open Market Operations (OMO) instrument of monetary policy management in Nigeria. In doing this, the study adopted the monetarist theory as the basis for measuring the effectiveness of OMO instrument of monetary policy management in Nigeria. The investigation was carried out using the Ordinary Least Squares (OLS) method of estimation. Unit Root and Co-integration tests were performed on all the variables and the results revealed that the variables have long run relationship and are suitable for OLS estimation. The empirical results indicated a significant relationship between monetary policy instruments such as open market operations, required reserve and monetary policy rate with broad money supply which is the proximate target for monetary policy management. This implies that Open Market Operations has been an effective instrument of monetary policy management in Nigeria. The study further showed that monetary policy rate could serve as a veritable instrument for the control of money supply and effective monetary policy management in the economy. It is recommended, among others, that the CBN should review periodically the performance of monetary policy with a view to enhancing the effectiveness of monetary policy instruments in order to achieve macroeconomic stability.

Keywords: OMO, Monetary policy effectiveness, Macroeconomic stability, Nigeria.