Effect of Monetary Policy Instruments on Domestic Private Investment in Nigeria
DOI:
https://doi.org/10.61143/umyu-jafr.8(1)2025.015Keywords:
Money Supply, Exchange Rates, Interest Rates, ARDL-ECMAbstract
In recent time, monetary policies directives of successive Nigeria Governments in the last four decades have been called to question with the instability in the economy resulting from policies summersault aimed at addressing issues of exchange volatility, interest rate instability and excessive money supply not backed with productivity. In light of this revelations, this study set out to examine the effect of monetary policy instruments on domestic private investment in Nigeria from 1986-2022. This study used domestic private investment as the dependent variable with gross and explanatory variables of selected monetary policy instrument: money supply, exchange rate and interest rate. The ARDL-ECM technique was used for statistical analyses and findings indicate that money supply and exchange rates have a significant relationship with domestic private investment while interest rates has an insignificant relationship with domestic private investment. The study concludes that the interplay of money supply and exchange rates do determine the level of domestic private investment in Nigeria. The study recommends that government should be intentional in ensuring that the broad money supply do not overwhelm the economy by ensuring that excess liquidity is mopped-up through open market operations to provide funds through banks for investment. Also, the exchange rate should be made stable to reduce its volatility as moderate stability in exchange rate has a positive effect on the growth of domestic private investment in Nigeria.
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