Abstract
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 second
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 macroeconomic 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.
11
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
12
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:
13
i. To analyze the various monetary policy objectives and instrument for the
period.
ii. To ascertain the level of success of policy measures against desired objects.
iii. To identify the factors that tends to hinder the full attainment of desired
objectives.
iv. 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 HYPOTHESISs
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
14
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.
i. To student, it will provide a compliment to the fair existing text on monetary
policy and economic stabilization.
ii. 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.
iii. 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.
iv. 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
15
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