The Impact Of Monetary Policy Measures As An Instrument Of Economic Stabilization In Nigeria (1980 – 2010)

Project and Seminar Material for Economics

Project and Seminar Material for Economics


The study examined the impact of monetary policy in stabilizing the Nigeria economy. In the model specified inflation is the regress while cash research requirement, liquidity ratio, money supply, minimum rediscount rate, interest rate are the regressors. The government employs a deliberate manipulation of cost and availability of credit and money to achieve this economic objective. The CBN being the sole regulatory body combines measures designed to regulate the value, supply and cost of money into economic activities.

This is what we call monetary policy (CBN Brief 1996/03). It is against this background that the research is carried out to ascertain the effect in the use of monetary policies such as money supply, interest rate, liquidity ratio, minimum rediscount rate, inflation rate and cash reserve requirement to stabilize the Nigeria economy. Also to determine the relationship that exists between the independent variables and dependent variable from the secondary data for the period under study (1980 – 2010).

The statistical technique that will be used for this analysis is the ordinary least square technique, with the aid of PC five 8.00 software package. It has been identified that the major problem militating against the poor performance of monetary policy instruments in stabilizing the economic in Nigeria is time – lags which involves policy employed to take many months to achieve its full effects. This research recommends that there should be a reduction in the cost of production and increase the exportation in order to achieve the objectives of naira devaluation in Nigeria and also, central banks should be independent and should be able to achieve its inflation targets and the stabilization of growth rate in money supply.

Chapter One


1.1 Background Of The Study

Monetary policy is the process by which monetary authority of a country controls the supply of the money that is monetary stock often targeting a rate of interest for the purpose of promoting economic growth and stability.
Monetary policy measures are monetary management put in place by the government through the central bank. These measures rely on the control of monetary stocks, that is supply of money in order to influence board macro- economic objectives which includes price stability, high level of em*loyment sustainable economic growth and balance of payment equilibrium. These board objectives are achieved through the use of appropriate instrument depending on which objective the policy formulated want to achieved and also on the level of development on the economy.

In the application of monetary policy measures as instrument of stabilization, instrument of monetary policy are determined by the nature of the problems to be solved and by this environment in which these problems exist. They are broadly two categories of these instruments VIZ- indirect and direct instruments. INDIRECT INSTRUMENT are usually used in the market based on economic where the quality of money stock can affected through the relationship between supply and resume money as well as the ability of the monetary authority to influence the creation of reserved.

The reserved and hence money supply can be affected through the following ways.

  1. Deposit ratio/change in reserve.
  2. Change in discount rate.
  3. Interest rate change.
  4. Engaging in an open market operation.

In an underdeveloped financial institution the instrument of monetary management is largely limited to direct measure which set monetary and credit target at desired levels. The major DIRECT control measure is direct investment regulation however quantitative ceiling on overall credit operation is also used. These instruments of monetary policy are applied in the achievement of varied objectives.

1.2 Statement Of The Problems

The Nigeria economy has encountered the problem of disequilibrium, inability to mobilize domestic savings and unsatisfactory expansion of domestic output. These problems have consistently and presently done severe damage to Nigeria economy; but most strikingly these problems have continued to play the economy unabated that is, the economy is becoming less strong. It is against the background that the problem of this study has been identified and they are as follows.

  1. Are monetary policy measures effective as instrument of economic stabilization?

1.3 Statement Of Objectives

The objectives of the study are:

  1. To analyze the various monetary policy objectives and instrument for the period.
  2. To ascertain the level of success of policy measures against desired objects.
  3. To identify the factors that tends to hinder the full attainment of desired objectives.
  4. To recommend the appropriate policy measures for the achievement of specific objectives as well as recommend solution to problem that hinders the full attachment of such objectives.

1.4 Statement Of Hypothesis

The following hypothesis is been formulated to guide the study.

  • H0: Monetary policy measures have no impact on the economic stabilization in Nigeria.
  • H1: Monetary policy measures have impact on the economic stabilization in Nigeria

1.5 Significance Of The Study

These researches provide insight into monetary policy measures as an instrument of economic stabilization and will therefore be of valuable use to the following set of people.

  1. To student, it will provide a compliment to the fair existing text on monetary policy and economic stabilization.
  2. To bankers, it will also find a valuable tool toward analyzing the effect of government action on their activities whether it is valuable or not.
  3. To investors, it will serve as a guideline on the effect of monetary policy on various sectors of the economy in which their fund can be invested.
  4. To the ordinary reader, this work will serves as an open eye and a valuable store of knowledge.

1.6 Scope And Limitation Of The Study

This research work covers the monetary policies from (1980 – 2010). This study will cover the relationship between the individual who would wish to know about the country’s economic state, and it is hoped that it will go a long way to solve some of the economic problems as regards to monetary policies and its measure as an instrument of economic stabilization.

1.7 Definition Of Terms

Monetary Stock:

This is the amount of money in circulation at any point in time.

Reserve Money:

This refers to the amount of money, banks are required to maintain in their vaults.

Reserve Ratio:

This is the ratio of deposit that banks are required to maintain with the central banks.

Discount Rate:

This is the rate at which the central bank make loan to commercial bank as a leader of last resort.

This term is used to qualify the central bank, when banks are cash trapped; it is the central bank that lends to them, whenever there is no alternative or liquidation.

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