Monetary Policy and Balance of Payments Stability in Nigeria

Abstract

This study examines the monetary policy phenomenon to Balance of Payment (BOP) in Nigeria. The study uses time-series data which spanned between 1986 and 2013.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 monetary policy variables and BOP. The core finding of this study shows that monetary policy variables of Exchange rate, Broad money supply and credit to the private sectors are the major monetary factors that determine BOP in Nigeria. The study concluded that monetary policies and implementation capacity is important in the Nigerian economy, because it is very special for determining the provision of interest rate to private sector which produce for export which will have a spill over effect on BOP and economic growth. Also, Balance of Payment is a monetary phenomenon and monetary policy can be used by monetary authority to improve and stabilised the foreign sector performance in Nigeria.