The Impact of Money Market Dynamics on the Economic Growth of Nigeria

Abstract

The notion that monetary policy is a panacea for economic growth remains empirically subjected to open research. This study tries to close up the knowledge gap by examining the impact of monetary policy on economic growth in Nigeria for the period 2010 to 2019. This study examined the impact of the monetary policy, influence of dynamics in the money market as well as the influence of deposit and lending activities of the money market on the growth of the Nigerian economy. Preliminary analysis shows evidence of long run equilibrium relationship which implies that the variables exhibit a common deterministic trend. By the regression estimates, Monetary Policy (MPR) has a significant and positive impact on Economic Growth (b= 0.021, t= 3.86, p < 0.05), Government Lending Activities has a significant and negative influence on Economic Growth (b=-0.045, t=-2.52, p < 0.05), and deposit activities (SADR) has a significant and positive impact on Economic Growth (b= 0.038, t= 3.463, p < 0.05). While lending rate has a significant and negative influence on Economic Growth (b=-0.020, t=-1.986, p < 0.05), the inverse relationship between lending rates and lending activity (with lower lending rate leading to higher lending activities, and vice-versa), a positive relationship exists between lending activities and economic growth. The results of the impact of monetary policy on economic growth in Nigeria depicts the nature of the financial structure, characterized by a low level of development. Monetary policy and deposit activities impact the economy positively. Therefore, the study recommends that measures to further promote monetary policy and deposits activities be put in place to promote economic growth. Policies at stimulating market forces to the right direction be considered.