Potency of Monetary Policy Instruments on Economic Growth of Nigeria

The incapability of the monetary policies to efficiently and effectively exploit its policy objective could be a function of pitfall of policy instruments adopted which restricts its contributions to economic progress in Nigeria. It is on this premise we explore the potency of monetary policy instruments on economic growth in Nigeria between year 2000 and 2015 with time series data. The study engages Johansen multivariate cointegration approach and Vector Error Correction Model (VECM) after all the variables were confirmed stationary at first difference and integrated at similar order I(1) using ADF, PP test and confirmatory technique of KPSS test .The Cointegration measure establishes existence of long-term relationship between monetary policy instruments and economic growth. Also reveal was a low monthly speed of adjustment of the variables towards their long-run equilibrium path to the tune of 26% approximately .The major discovery of this work discloses that Consumer Price Index (CPI) , Real Exchange Rate, Money Supply (M2) and Interest Rate are significant monetary policy instruments that propel economic growth in Nigeria in the year under review. Based on the outcomes, we therefore recommend inflation targeting which will not only assist in proper monitoring of money supply but will also boost the overall growth in the economy. Also Domestic production of exports commodities should be promoted via deliberate policy measure by the Nigerian government so as to ensure stability in real exchange rate and positively contribute to the Nigerian economic growth. Keywords: Monetary policy, Economic Growth, Time Series, Unit Root, VECM.