Download complete project material on Assessing The Impact Of Monetary Policy In Nigeria Economy from chapter one to five
ABSTRACT
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This project is aimed at examining the impact of monetary policy in Nigeria economy and viewing the effect of Central Bank of Nigeria (CBN) to introduce new monetary policy tools. However, the fundamental problem of the study is the application of open market operation (OMO) as an instrument of monetary policy in Nigeria.
The empirical literature of the study reviews the administration of monetary policy in Nigeria and it tools as compared with fiscal policy during the review period. The material used were gotten from primary and secondary sources and the publications from Central bank of Nigeria. The simple percentage method was used in analyzing these data as it considered more appropriate in drawing conclusions and presentations.
Having done this, the findings revealed that monetary policy is more effective than fiscal policy in Nigeria and it was concluded that monetary. Policy played an important role in the maintenance of stable prices and balance of payment (internal & external). It is recommended that the management of CBN should give support to public and private sector and these sector should comply to laid down monetary polices to achieve monetary policy objectives.
TABLE OF CONTENT
Title page
Declaration
Approval page
Dedication
Acknowledgment
Abstract
Table
CHAPTER ONE
Introduction
1.1 Background of the study
1.2 Statement of Problems
1.3 Objectives of the study
1.4 Research Hypothesis
1.5 Significance of the study
1.6 Scope of the Study
1.7 Historical Background of the case study
1.8 Definition of terms
CHAPTER TWO
LITERATURE REVIEW
2.1 Introduction
2.2 The concept of monetary policy
2.3 Objective of monetary Policy
2.4 Administration of monetary policy in Nigeria
2.5 The goals and instruments of monetary policy during the review period during the review period.
2.6 Liquidity condition and management
2.7 The impact of monetary policy in Nigeria Economy as compared with fiscal policy
2.8 Institutional arrangement for formulation and implementation of open market operation
2.9 Monetary policy reforms and its implication
2.10 Appraisal of monetary policy
2.11 Technical and operational modalities
2.12 Monetary policy (2010)
2.13 Conclusion
CHAPTER THREE
RESEARCH METHODOLOGY
3.1 Introduction
3.2 Population and sample size
3.3 Sampling Technique
3.4 Sources and method of data collection
3.5 Method of Data Analysis
3.6 Justification for the choice
CHAPTER FOUR
DATA PRESENTATION, ANALYSIS AND INTERPRETATION
4.1 Introduction
4.2 Data presentation and analysis
4.3 Test of Research hypothesis and interpretation
4.4 Summary of findings
CHAPTER FIVE
5.0 SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1 Summary
5.2 Conclusion
5.3 Limitations of the study
5.4 Recommendations
Bibliography/Reference
Appendix/Appendices
CHAPTER ONE
INTRODUCTION
Paper money called “Jiaozi originated from promissory notes in the 7th century China. Jiaozi did not replace matalic currency, and were used along side the copper coins. The successive “Yuan Dynasty” was the first government to use paper currency as the predominant circulating medium.
With the creation of the Bank of England in 1694, which acquired the responsibility to print notes back them with gold, the idea of “monetary policy” as independent or executive action began to be established. The goal of monetary policy was to maintain the value of the coinage, print notes which would trade at par to specie, and prevent coins from leaving circulation.
The establishment of central banks was associated then with the desire to maintain the nation’s peg to the gold standard and to trade in a narrow band with other gold backed currencies. To accomplish this end, central banks as apart of gold standard began setting the interest rates that they charged both their own borrowers and other banks who required liquidity. (See Bernanke and Milou 1998).
History made us to understand that during the 1870-1920 period, the industrialized nations set up central banking systems, with one of the last being the federal Reserve in U.S., 1913. By this point, the role of the central bank as the “lender of last resort” was understood. It was also increasingly understood that interest rates had an effect on the entire economy.
However, there are two views on the efficiency of monetary policy, monetarist view and Keynesian views. The keynesian’s view state that: “Monetary policy should be directed towards interest rates rather than money supply and that the monetary policy should be subsidiary to fiscal policy”. (Starr 2005).
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The monetarists showed and recommends that the control of monetary policy has a central role in macroeconomic management primarily because of the close relationship between the monetary aggregate and economic activities.
These included Milton Friedman who early in his career in 1972, advocated that government budget deficit during recessions be financed in equal amount by money creation to help to stimulate aggregate demand for output (see Berment (2007), (Milton 1963).
However, when US Federal reserve chairman, (Paul Voliker) tried this policy, starting in October 1979, it was found to be impractical because of the highly unsable relationship between monetary aggregates and other macro economic variables. Even Milton Friend man acknowledged that money supply targeting was les successful than he had hope in an interview with the financial times on June 7, 2003.
Monetary management policy could take the form of direct or indirect control instruments which comprises of interest rate registration, credit ceilings and sectorial allocation of credit. An indirect policy instrument is mostly adopted by market based economy like Nigeria.
In Nigeria, the application of credit ceiling in 1986, was designed to ensure that domestic, credit expansion and monetary implications targets the expected increase in total demand for liquidity in the economy. The technique of indirect monetary policy control, basically involves the control of the money stock through the manipulation of the sources of the monetary base by he application of open market operation (OMO), reserve requirement and interest rate.
1.1 BACKGROUND OF THE STUDY
The adoption of a market based frame work such as Open Market Operation (OMO) in Nigeria Economy that had been under direct control for long required substantial improvement in the macro-economic stability, efforts were directed to the management of excess liquid. Thus a number of measures were introduced to reduce liquidity in the system.
These includes the reduction in the maximum ceiling on credit growth allowed for banks, the recall to central Bank of Nigeria (CBN ) from banks of the special deposits as requirement against outstanding external payment in areas, abolition of the use of foreign guarantees or currency deposits as collateral for naira loans and the withdrawal of public sector from banks to the CBN.
The use of stabilization security for purpose of reduction in the bulging size of excess liquidity in banks was introduced. In August, 1990 (Ikhide and Alawode (1994), Ojo 1993, Soyibu and Adekanye 1992).
Commercial banks cash reserve requirement were increased in 1989, 1990 and 1992, the rising level of fiscal deficits was identified as major source of macro economic changes but also synchronize fiscal and monetary policies. In the legal aspect, the federal government promulgated the CBN decree (BOFID) No.
1969, the CBN decree enhanced the banks powers and discretion in the design and conduct of monetary policy, while the BOFID (Banks and other financial institution Decree) addressed the problem of policy leakages in the monetary management by bringing the non-bank financial intermediaries, which hitherto, were entirely outside the control of the CBN under the control and supervision of the bank.
The decree streamlined and simplified procedures for licensing banks and established procures for licensing and controlling other financial institutions including discount houses and financial companies. Three discount houses have been fully licensed to undertake secondary market dealership in treasury security.
By way of inducing efficiency and encourage good measures of flexibility in banks, credit distribution target or operations, the regulatory environment was also improved. Consequently, the sectors specific credit distribution targets were compressed into four (4) sections in 1986 and top only two(2) in 1987.
The commercial and merchant banks were subjected to equal treatment since their operations were found to produce similar effects on the monetary process. Hence, merchant banks, hitherto excluded from cash reserve requirement were subject to the same cash ratio with commercial banks. Also liquidity ratio of merchant banks was raised to the level applicable to commercial banks. In August 1987, all controls in interest were removed.
However, in 1991, bank’s minimum lending rate were pegged at 21% while a minimum of 13.5% was stipulated as fro savings deposits. From 1992, the market was fed with interest rate control. However, control measures were re-introduced in 1994 and later deregulated in 1997.
In recognition of the fact that well capitalized banks would strengthen the banking system for effective monetary management, the monetary authority increased the minimum pay. Capital of commercial and merchant banks in Feb. 1990 from N40 million to N50 million and from N12 million to N20 million respectively. This was later increased to N500 million for both banks in 1997. It was then increased to N26 billing and currently N25 billion as from Dec. 2005.
In an effort to improve the operation of money market, an auction-based market for treasury securities was instruments were made as beared bills so as to enhance transferability and promote secondary trading. The importance of timely data for the success of indirect monetary management, especially through OMO was realized by the CBN such that efforts have been made to improve the quality and timelines of financial data.
To this end, remarkable progress have been made in the computerization efforts to the CBN and banks there by creating a more conducive atmosphere for quick processing of relevant data, from 30th June 1993, the CBN commenced OMO in treasury, security, with banks through discount house.
The OMO, is coordinated with discount window and reserve requirement policy to ensure the attainment of the monetary policy objectives and targets. In particular, Recruitment of participations of OMO depends largely on the structure or the financial system.
Where there are discount houses, it is common for the apex bank to channel transactions primary through discount houses, in their absences the CBN relies on the selection from the foregoing instruments that the main purpose of OMO is to influence banks liquidity with a view of influencing monetary growth.
However, the expansion or contraction in money stock is not desired for its own sake but rather to achieve monetary growth, that is consist with short term to long term objective of the economy especially with regards to exchange rates, interest rate, investment and low or non-inflationary growth in goods and services.
1.2 STATEMENT OF PROBLEMS
The fundamental problem of any government is it’s economic stability or otherwise its implementation of monetary policy instruments. A number of government monetary policy instrument have been designed and applied in Nigeria in the hope of achieving the desired objective or results of stable price level, low level of unemployment, efficient banking policy/system etc, but the application of direct monetary instrument have not bring forth the desired objectives stated above hence, left the government with no other alternative than to turn to the indirect monetary instrument therefore, the main problem under this study is the application of OMON (Open marketing operation) as an instrument of monetary policy in Nigeria.
1.3 OBJECTIVES OF THE STUDY
Over the years, the objective of monetary policy have remained the attainment of internal and external balance of payment. However, emphasis on the instruments to achieve those objectives have changed over the years.
The main purpose for this research work is to assess the impact of monetary policy in Nigeria. The research is also aimed at reviewing the performance of monetary policy in Nigeria and also present a clear picture of the efforts of CBN to introduce the monetary policy instruments.
1.4 RESEARCH HYPOTHESIS
The objective of this study will be pursued vigorously by directing analytical tools towards putting it into imperial test, the following are the major hypotheses:
H01: Null Hypothesis: Monetary policy is not an important tool of macroeconomic stability in Nigeria economy.
Hi1: Alternative Hypothesis: Monetary policy is an important tool of macroeconomic stability in Nigeria economy.
H02: Null Hypothesis: Monetary supply has no impact on the level of economic activities.
Hi2: Alternative Hypothesis: Monetary supply has impact on the level of economic activities.
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