AN EVALUATION OF THE INFLUENCE OF MONEY MARKET INSTRUMENTS ON ECONOMIC GROWTH IN NIGERIA

Abstract

This study investigates the impact of monetary policy variables on economic growth in Nigeria from 1981 to 2022 focusing on money supply, exchange rate, interest rate, and inflation rate. A comprehensive analysis covering both short-run and long-run perspectives reveals intriguing insights into the interactions between these financial factors and economic growth.The broad objective of the study was to investigate the impact of monetary policy variables on economic growth in Nigeria. The Ex-Post Facto research design was employed in the study whereas the Autoregressive Distributed Lag (ARDL) model was used to analyze the impact of monetary policy variables on economic growth. The study uncovers that money supply has a positive and significant impact on economic growth, implying that maintaining a balanced and effective monetary policy is vital for stimulating economic growth in Nigeria. A favorable exchange rate is found to be  positively associated with economic growth, underlining the importance of exchange rate stability for attracting foreign investments and boosting exports.However, the research also highlights the adverse effect of high-interest rates on economic growth, emphasizing the need for careful management of interest rates to avoid hindering investment and consumption. On the other hand, moderate inflation rates are positively linked to economic growth, suggesting that policymakers should target a balanced inflation rate that supports economic growth.The study concludes that monetary policy variables play a pivotal role in shaping economic growth in Nigeria and offers recommendations for policymakers to optimize these variables to foster sustainable economic growth. Furthermore, it calls for further research to delve deeper into the effectiveness of specific monetary policy tools and their interaction with fiscal policies.