The Monetary Transmission Mechanism in Nigeria: a Sectoral Output Analysis

In: Business and Management

Submitted By tiano555
Words 6525
Pages 27

International Journal of Economics and Finance

Vol. 4, No. 1; January 2012

The Monetary Transmission Mechanism in Nigeria: A Sectoral Output Analysis
Philip Ifeakachukwu, NWOSA (Correspondence author) Department of Economics, Accounting and Finance Bells University of Technology, Ota, Ogun State, Nigeria Tel: 234-082-470-7555 E-mail:

Muibi Olufemi, SAIBU Dept of Economics, Obafemi Awolowo University Ile-Ife, Osun State, Nigeria Tel: 234-085-338-1914 Received: May 31, 2011 doi:10.5539/ijef.v4n1p204

E-mail: Published: January 1, 2012

Accepted: July 5, 2011


The study investigated the transmission channels of monetary policy impulses on sectoral output growth in Nigeria for the period 1986 to 2009. Secondary quarterly data were used for the study while granger causality and Vector Auto-regressive Method of analysis were utilized. The results showed that interest rate channel was most effective in transmitting monetary policy to Agriculture and Manufacturing sectors while exchange rate channel was most effective for transmitting monetary policy to Building/Construction, Mining, Service and Wholesale/Retail sectors. The study concluded that interest rate and exchange rate policies were the most effective monetary policy measures in stimulating sectoral output growth in Nigeria.
Keywords: Sectoral output, Monetary transmission channels, Granger causality, VAR model 1. Introduction

The channels through which monetary policy impulse is being transmitted to the economy had been a subject of continuous discourse among academia’s and researchers given that an understanding of the transmission of monetary policy to real output is key for central bankers to conduct monetary policy effectively. While issues on monetary transmission…...

Similar Documents

Capital Market and Manufacturing Sector Financing in Nigeria

...CAPITAL MARKET AND MANUFACTURING SECTOR FINANCING IN NIGERIA Ewa, Efa Okoi Department of Business Management University of Calabar, Nigeria +234-8037-796-936 Abstract This paper discusses mainly the role of the capital market in financing the manufacturing sector in Nigeria. The discussion centered on the state of the Nigerian manufacturers, background, challenges and the imperatives of the capital market meeting the financial and investment challenges of the sector in the face of recent economic reforms and increasing competition posed by globalization. The study sought to determine the extent to which the Nigerian capital market contributes to the development of manufacturing industries. An attempt was made to highlight government intervention in funding the sector and the reality of the country’s manufacturing sector. The study revealed that the Nigerian manufacturing sector has been on the decline owing mainly to government reliance on the oil industry, the decaying infrastructural facilities in the country and non-access to investment fund by local manufacturers. The study concluded that the capital market, despite the problems and challenges it may faced, is a veritable tool in the growth and development drive of the country’s manufacturing sector. 1. Introduction The manufacturing sectors in any country of world rely on medium and long-term fund to carry out its productive activities. Equity capital alone is never adequate and......

Words: 5321 - Pages: 22

Economic Analysis: Monetary Policy & Environment

...contribute to economic stability and improve current economic outcomes. The successful use of government policy tools is evident through an examination of environmental economics, monetary policy and the labour market. With regards to the environment and the labour market, the government have made use of taxes, permit trading systems, general regulations and transfer payments to influence economic outcomes in each of these respective fields. By studying monetary policy it is also apparent that control over the interest rate mechanism is another effective tool used by policymakers to enhance the present and future economic circumstances of a nation. As society continues to expand, the quality of the environment is beginning to deteriorate. Governments to prevent this from occurring and to avoid market inefficiency, can help the economy through policy tools such as enforcing taxes and regulating pollution permit trading systems. As shown in Figure 1 below, market equilibrium (Me) on its own is inefficient because it does not take into consideration the negative externalities that arise during production and does not account for a lack of incentive by firms to incorporate additional production costs. The implications of market failure will mean that a society will not be allocative efficient and as a result output will be greater than it what it should be (Q0 instead of Q1). Figure 1 In order for society to be producing at the socially optimal level (Se), governments can......

Words: 1261 - Pages: 6

Critical Analysis of Character Evidence in Nigeria

...A CRITICAL ANALYSIS OF CHARACTER EVIDENCE IN NIGERIA BY MADUBUIKE CHIKEZIE OBINNA 05/61313 BEING A COMPULSORY RESEARCH PROJECT SUBMITTED TO THE FACULTY OF LAW, ABIA STATE UNIVERSITY, UTURU IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD OF BACHELOR OF LAW (LL.B) DEGREE OCTOBER, 2010. CERTIFICATION I, MADUBUIKE CHIKEZIE OBINNA of the Faculty of Law Abia State University hereby certify that this project work was carried out under the supervision of Barr. A.S AMARAMIRO. Supervisor’s Signature. | Date. | Student’s Signature. | Date. | DEDICATION This work is dedicated to The Almighty God who helped me study under Grace. ACKNOWLEDGEMENTS Good works are often the product of cross fertilization of ideas and sincere support of resource persons. Accordingly, I give my unalloyed thanks to my creator, God the Almighty, the spring of all knowledge, my Ebenezar. I am profoundly grateful to my efficient, diligent and understanding supervisor Barrister A.S Amaramiro whose love, guidance, critical remarks and suggestions were very insightful. I will forever remain sincerely grateful. Specially, I remain highly indebted to my parents Elder and Mrs. O.C Madubuike for their love, moral, spiritual and financial encouragement since I was born. They are my engine room. My gratitude also goes to my siblings: Oluchi, Emeka, chinonso, kelechukwu and ugochukwu. They cannot be thanked enough for their love and......

Words: 2516 - Pages: 11

Monetary Policy and Gdp

...DOES MONETARY POLICY INFLUENCE ECONOMIC GROWTH IN PAKISTAN? Haji Saif Ullah (Author) Email: Muhammad Ashraf (coordinator) Department of Management Sciences University Of Gujrat, Gujrat ABSTRACT This study examines the impact of monetary policy on economic growth in Pakistan. The study uses time-series data covering the range of 1991 to 2011.The effects of stochastic shocks of each of the endogenous variables are explored using Error Correction Model (ECM). The study shows that Long run relationship exists among the variables. Also, the core finding of this study shows that inflation rate, exchange rate and external reserve are significant monetary policy instruments that drive growth in Pakistan. It is therefore recommended that the establishment of primary and secondary government bond markets that can also increase the efficiency of monetary policy and reduce the government’s need to rely on the central bank for direct financing. Keywords: Policy instruments, Economic Growth, GDP, Money supply, monetary policy INTRODUCTION The aim of this study is to examine the impact of monetary policy on economic growth. Economic growth is an important macroeconomic objective for any country. Monetary policy has direct relation with economic growth. Folawewo and Osinubi (2006) stated monetary policy as the arrangements which are planned to control supply of money in a country. In many countries the basic aims of the monetary policy are to stabilize......

Words: 3750 - Pages: 15

Monetary Policy in Nigeria

...Monetary Policy in Nigeria The Impact of Monetary policy on Nigeria’s Economic Growth. Monetary Policy in Nigeria - Developing countries growth policies are better delivered as full packages since fiscal and monetary policies are inextricable, except in terms of the instruments and implementing authorities. However, monetary policy appears more potent in correcting short term macroeconomic maladjustments because of the frequency in applying and altering the policy tools, relative ease of its decision process and the sheer nature of the sector which propagates its effect to the real economy – the financial system. The main objective of monetary policy in Nigeria is to ensure price and monetary stability. This is mainly achieved by causing savers to avail investors of surplus funds for investment through appropriate interest rate structures; stemming wide fluctuations in the exchange rate of the naira: proper supervision of banks and related institutions to ensure financial sector soundness; maintenance efficient payments system; applying deliberate polices to expand the scope of the financial system so that interior economics, which a re largely informal, are financially included. Financial inclusion is Particularly important in the sense that the larger it is, the larger the interest rate sensitivity of production and aggregate demand and so the more effective monetary policy is. The economy of Nigeria is faced with unemployment low investment and high inflation......

Words: 4359 - Pages: 18

An Analysis of the Impact of Risk Exposure to the Performance of Banks in Nigeria

... AN ANALYSIS OF THE IMPACT OF RISK EXPOSURE TO THE PERFORMANCE OF BANKS IN NIGERIA CERTIFICATION I certify that this research work was carried out by MR ABOYARIN SALAMI TUNDE with Matriculation No.; 109025160 of the Department of Finance, Faculty of Business Administration, University of Lagos, Akoka, Lagos. __________________________ ______________ DR. LEKAN OBADEMI DATE _______________________ ____________ PROF. W. IYIEGBUNIWE DATE HOD DEPARTMENT OF FINANCE _______________________ ____________ EXTERNAL EXAMINER DATE DEDICATION This project work is dedicated to the Glory of ALMIGHTY ALLAH (SWT) to Him I say as always; ALHAMDULILAHI ROBIL ALAMIN!!! Special dedication also goes to the memory of my late father; Alhaji R.S.A Aboyarin. I pray his soul finds forgiveness and mercy before Allah (Amin. ACKNOWLEDGEMENT CHAPTER ONE 1.0: INTRODUCTION AND BACKGROUND TO THE STUDY Banks are germane to economic development through the financial services they provide. Their intermediation role can be said to be a catalyst for economic growth and development. The efficient and effective performance of the banking industry over time is an index of financial stability in any nation. The extent to which a bank extends credit to the public for productive activities accelerates the pace of a nation’s economic growth and its long-term......

Words: 14126 - Pages: 57

Monetary Policy

...Abstract The study investigates the effects of Monetary policy on some significant economic variables like exchange rate, gross domestic product and inflation using data from 1960-2010 to analyze the results. We have taken the data in percentage form. A great number of empirical studies on the relationships of monetary policy and inflation are available and most of these have analyzed the effectiveness of monetary policy in controlling inflation in Pakistan. In this paper we have presented the effectiveness of monetary policy it’s framework and data estimation through which we reached to the conclusion that monetary shocks do affect real variables like GDP, inflation and exchange rate. Pakistan has been estimated by a number of researchers and it has been recognized that monetary phenomenon are responsible for the high levels of inflation. Keywords: Monetary Policy, Inflation, Exchange rate, Economic Growth, Gross domestic product and Pakistan. Introduction This paper attempts to examine the long-run effects of Monetary Policy on several economic variables such as inflation, economic growth that is gross domestic product and exchange rate in Pakistan. For this purpose, analysis have been employed for the period 1960-2010. As monetary policy actions affect policy variables with a significant gap and with high degree of unpredictability and insecurity, it is key to predict the probable impact and degree of monetary policy actions on the real variables. Usually, policy......

Words: 2772 - Pages: 12

Spss Output Analysis

...Interpretation of SPSS output for Car Care Inc. Jacquelynn Patterson Liberty University Online Professor Lingley Busi 331-B01 October 7, 2013 1.0 Introduction Statistics in social sciences are an important aspect in making the understanding of social behaviors plausible in organizations, governments, marketers and other cohorts with same interest. Initially, statistical manipulations were conducted manually and obliged researchers to have formulas at their fingertips. This strenuous exercise was susceptible to shortcomings in case large volumes of data were to be analyzed. In addition, manual calculations depend on human nature that is vulnerable to ill health, emotional exhaustion and fatigue. As a result, there are many chances of making errors when dealing with manual calculations. This would finally affect the end results obtained. The above mentioned problems are likely to be amplified especially when dealing with a huge number of research subjects. If this is the case, it implies that marketing research data analysis would be the most vulnerable if manual statistical manipulations were embraced. This is because marketing research depends heavily on many respondents in order for the results to valid and reliable for making inferences to the whole population. Inevitably, marketers are bludgeoned into using statistical software that can handle large volumes of cases in a single command. This does not only......

Words: 1198 - Pages: 5

Strategic Analysis of Pz Cussons Nigeria

...Eugene Aniemeke Strategic Analysis of PZ Cussons Nigeria Plc. Annual Report 2013 R1403D66321  Table of contents 1. Introduction …………………………………………………………………………………………….3 2. Strategic Analysis of the Annual Report ………………………………………………………5 3. Conclusion …………………………………………………………………………………………………..14 4. References ……………………………………………………………………………………………………15 Introduction “Strategic management process is a method by which managers conceive of and implement a strategy that can lead to a sustainable competitive advantage” (, 2013). The structure of this report will focus on a Critical analysis of PZ Cussons most recent annual report based on the Strategic management process in play. The purpose of this study is to analyze PZ Cussons Nigeria PLC’s strategic management process with the aid of its annual report. The Nigerian fast moving consumer goods (FMCG) sector is evidently extremely competitive and as such requires a meticulous execution of strategic management process within its business environment. A business must be able to analyze its environment and make informed decisions that will not only guarantee its survival but profit. The fast moving consumer goods (FMCG) sector in Nigeria basically involves the manufacture as well as the marketing of soaps, detergents, home and personal care products, and electrical goods. This also includes food and nutritional products. The sector comprises of four major......

Words: 3357 - Pages: 14

Fdi and Nigeria Economic Growth

...THE EMPIRICAL ANALYSIS OF IMPACT OF FOREIGN DIRECT INVESTMENT ON ECONOMIC GROWTH IN NIGERIA BY OKUNLOLA TUNDE S. MATRIC NO: 139191 September 2011 Being research work submitted to Department of Economics, Faculty of Social Sciences, University of Ibadan, in partial fulfillment of the requirement for the award of Bachelor of Science (B.Sc) in Economics CERCTIFICATION I hereby certify that this work was carried out by OKUNLOLA TUNDE S. of Matric No 139191 in the Department of Economics, Faculty of Social Sciences, University of Ibadan. …………………………………. ……………………………… Date Dr. B. Fowowe Supervisor DEDICATION My sole dedication goes to God almighty whose mercy has never ceased in changing me despite all odds, whose boundless love and vast grace is bringing to pass my childhood dreams and fantasies. ACKNOWLEDGMENT My deepest gratitude goes to my parents who always, tirelessly and sacrificially support me, trust me, care for me and love me despite all my short comings and even when it so difficult. May the lord reward you abundantly. And also to my supervisor, Dr. B. Fowowe, I say thank...

Words: 12592 - Pages: 51

Monetary in Vietnam: Alternatives to Inflation Targeting

...Monetary Policy in Vietnam: Alternatives to Inflation Targeting Le Anh Tu Packard ( Fifth Draft July 2007 Paper prepared for the Political Economy Research Institute (PERI) at the University of Massachusetts, Amherst with support from the United Nations Department of Economic and Social Affairs (UNDESA). Earlier versions of this paper were presented to the May 2005 CEDES/Amherst Research Conference in Buenos Aires and the July 2005 Da Nang Symposium on Continuing Renovation of the Economy and Society. Financial support for this project has been provided by the Ford Foundation, UNDESA, and the Rockefeller Brothers Foundation. My gratitude and thanks go to two anonymous referees, Gerald Epstein, Erinc Yeldan, Jaime Ros, Lance Taylor, Per Berglund, and Phillipe Scholtes for their insightful comments and valuable ideas, and also to numerous colleagues in Vietnam including Dang Nhu Van for their helpful feedback. I am responsible for all remaining errors and omissions. List of Acronyms and Abbreviations ASEAN BFTV BIDV CEPT CIEM CMEA CPRGS DAF FDI FIE GC GDI GDP GNP GSO HDI IMF JV NEER ODA PE PER PRGF PRSC RCC REER ROSCA SBV SOCB SOE UCC UNDP VCP VLSS WTO Association of South East Asian Nations Bank for Foreign Trade of Vietnam Bank for Investment and Development of Vietnam Common Effective Preferential Tariff Central Institute for Economic Management Council of Mutual Economic Assistance Comprehensive Poverty Reduction and Growth Strategy......

Words: 10004 - Pages: 41

Economic & Financial Analysis of Nigeria

...(WEO) Update of the International Monetary Fund (IMF), January 2015 Edition, the global economic growth is forecast at 3.5% and 3.7%, for 2015 and 2016 respectively. The forecasts were reviewed downward by 0.3% The IMF forecasts a global economic growth of 3.5% and 3.7% for 2015 and 2016 respectively. relative to the October 2014 WEO. The revisions reflect a reassessment of prospects in China, Russia, the Euro-area, and Japan as well as the weaker activity in some major oil exporters because of the sharp drop in oil prices. The United States (U.S.) is the only major economy for which growth projections have been raised upward. The IMF added that the global growth will receive a boost from the lower oil prices. However, this boost is projected to be more than offset by the negative factors, including investment weakness as adjustment to diminished expectations about medium-term growth continues in many advanced and emerging market economies. The U.S. is expected to grow by 3.6% in 2015 and slow down to 3.3% in 2016, supported by domestic demand due to lower oil prices, more moderate fiscal adjustment, and The U.S. is expected to grow by 3.6% in 2015 and slow down to 3.3% in 2016. continued support from an accommodative monetary policy stance, despite the projected gradual increase in interest rates. The Euro-area is forecast to grow by 1.2% and 1.4% in 2015 and 2016 respectively. The growth would be driven by lower oil prices, further monetary policy easing, a more......

Words: 11443 - Pages: 46

Analysis on the Growth of Balance of Payment and Sectoral Growth in Bangladesh

... Balance of Payment: The Balance of Payment slipped into a deficit for the first time in a decade resulting in heightened risks to Bangladesh’s external position. The government agreed a three-year reform programme with the International Monetary Fund (IMF) styled Memorandum of Economic and Financial Policies (MEFP) to access credit the IMF’s Extended Credit Facility (ECF) arrangement to stave-off the pressures on the BoP. The access to IMF funds requires reduction in aggregate demand by employing mechanisms such asdepreciation of currency and cut in import demand and supply of investible funds to the entrepreneurs. The central bank has already allowed the local currency to depreciate significantly against the foreign currencies and put in place contractionary monetary policy to restrict money supply to the private sector and import of goods and services. The central bank may have to resort to further devaluation of taka and administer reduction in imports, if supply of foreign currencies from sources such as remittances does not maintain considerable growth momentum nor the government anticipated flow of foreign aid is materialised. EXECUTIVE SUMMARY The report entitled “Analysis on the growth of Balance of payment and sectoral growth in Bangladesh” mainly focuses on the reason behind the changing rate . It involves economic models developed to determine the impact of each sector-Export, Import, FDI and current, capital and financial accounts which are the key......

Words: 9177 - Pages: 37

Channels of the Monetary Transmission Mechanism

...Channels of the monetary transmission mechanism The interest rate pass-through from the key policy interest rate via money market interest rates to the banks’ borrowing and lending interest rates, is an important stage of monetary transmission since it investigates the way the central bank influences interest rates in the economy, in particular when banks have a dominant role in the financial system, as in the case of Macedonia. The monetary policy has the potential to influence output and prices. Output is affected in the short to medium run, because of nominal price and wage rigidity. For instance, if the central bank increase the supply of money, that will lead to increased demand for goods and services, increased demand for labour force, increased production, and on the other side if the employees ask for higher wages, when companies will realize that demand is only nominally increased, the curve will decrease, meaning that on short-term the central bank may influence due to the rigidity of wages and prices. Nevertheless, the output effects will disappear in the long run as it is expected that prices will adjust slowly, but certainly. Thus, in the long run monetary policy determines the prices of goods and services. Understanding the mechanisms through which the monetary signals are transmitted within the economy is not an easy task. The difficulty arises not only because of numerous transmission channels, but also because of their different relative importance in......

Words: 869 - Pages: 4

Comparative Analysis of South Africa and Nigeria

...COMPARATIVE ANALYSIS OF SOUTH AFICA AND NIGERIA Africa is the second largest continent with vast resources and inhabits more than 12 percent of the world’s population. Although we know that the continent has plenty of resources, Africa remains the world’s poorest and most undeveloped continent. [1]Poverty is widespread, there is a great threat of communicable diseases such as HIV/AIDS, malaria and tuberculosis. Politically, I would say that the country is unstable as there were civil and liberation wars. The lack of development in africa is closely linked to the phenomenon of state weakness which underlines the need for improvement governance as prerequisite for development in Africa. And so corruption is widespread and human rights abuses are a norm among many governments in Africa. When we read about these two nations we see that, South Africa and Nigeria have a lot of influence on African Affairs. Nigeria and South Africa both are blessed their ethnicities and races, an asset to national and economic development. Nigeria and South Africa are both stratified societies. Both the countries were shaped by assumptions and definitions imposed by the British rulers. British imperial rule in both countries provided identities, languages and symbols for ethnic and racial groups. [2]In South Africa, for example, the colonists' policies deepened the differences between Zulus and Xhosas, Ndebele and Vendas, Tswana and Qwaqwa, etc. Also, those of mixed race were segregated......

Words: 1359 - Pages: 6