IMPACT OF MONETARY POLICY ON ECONOMIC GROWTH IN NIGERIA
This study has attempted to investigate the impact of monetary policy on nominal economic growth in Nigeria using the dummy variable technique to enquire if there is any difference between the conduct of monetary policy during military and civilian government in Nigeria covering a period of 45 years (1970-2014). It was discovered that for the period under study monetary policy had a significant impact on economic growth in Nigeria, with money supply playing an active role and main instrument of the central bank in pursuing its monetary objectives, also the dummy variable analysis revealed that there exist a statistically significant difference between monetary policy performance in explaining economic activates during the military government and the civilian government. It was recommended that the financial system in Nigeria should be improved upon and standard should be made equal to more advanced countries as stable and sound financial system is the heartbeat of monetary policy conduct and proper effective implementation of monetary policy.
1.1 Background to the Study
Monetary policy is known to be a vital instrument that a country can deploy for the maintenance of domestic price and exchange rate viability, as a critical condition for the achievement of a sustainable economic growth and external viability (Amasomma, Nwosa and Olaiya 2011). Monetary policy in Nigeria has been conducted under wide ranging economic environment since the establishment of the central bank of Nigeria (CBN) over forty years ago. However, in recent years, the federal government through the central bank has made conscious and determined efforts to set and attain a high standard of macro-economic variables in order to ensure sustainable growth and development.
Over the years, the objectives of monetary policy have remained the attainment of internal and external balance of payments. Thus, inflation targeting and exchange rate policy have dominated CBN’s monetary policy focus based on assumption that these are essential tools of achieving macroeconomic stability (Ajayi, 1999). In Nigeria, monetary policy has been in use since the Central bank of Nigeria was saddled with the responsibility of formulating and implementing monetary policy by Central bank Act of 1958 (Onyeiwu, 2012). And ever since then the CBN has developed several mechanism in carrying out its mandate. However, emphasis on techniques/instruments to achieve those objectives has changed over the years.
Since its establishment, the CBN has operated basically within two political structure, these structures being military regime which lasted from 1966- 1999 and the civilian government which has been invoke since 1999 to date (August, 2016) however during the period 1979-1983 there was a civilian administration and also an interim government (August – November 1993). These various structures had varying objectives and conduct of monetary policy to suit the economic need of the nation.