THE IMPACT OF MONETARY POLICY ON SMALL AND MEDIUM SCALE ENTERPRISES (SMES) IN THE PERIOD OF ECONOMIC CRISES

Abstract

The study examines how monetary policy affects small and medium-scale (SMEs) in Nigeria during 1991–2020. The paper shows how monetary policy variables, such as the interest rate, money supply and inflation rate, drive the relative outputs of the SMEs to GDP (SMEGDP). In line with theoretical consideration, the estimation includes other control variables including gross fixed capital formation and secondary school enrolment rate to represent proxies for capital and labour, respectively. The result shows that the Johansen cointegration establishes long-run relationship amongst the considered determinants of the SMEGDP. The study finds that the money supply and interest rate, respectively, have significant positive and negative impact on the SME outputs, whist inflation rate produces adverse but insigificnat effect on output. The magnitude and significance of interest rate is more than that of the money supply. Generally, the evidence suggests the need for policy to reposition SMEs. The paper recommends that there should be discretionary use of monetary policy in enhancing SMEs and efforts at promoting macroeconomic stability.