EFFECTIVENESS OF MONETARY POLICY TOOLS ON NIGERIA'S ECONOMIC GROWTH AND THE MODERATING IMPACT OF FINANCIAL SECTOR DEVELOPMENT

This study investigated effectiveness of monetary policy tools on Nigeria’s economic growth and assessed the moderating impact of financial sector development. Annual time series data on Gross Domestic Product (GDP), Exchange Rate, and Inflation are obtained from Nigerian Central Bank's statistical and Monetary Policy and Credit Availability were obtained from World Bank Development Indicators covering 31 observations from 1991 to 2022 were used in the study. Data were analyzed using the Autoregressive Distributed Lag (ARDL) model. Research results show that, there exists a positive significant relationship between exchange and Inflation rates with economic growth over the long term; also, positive significant relationships can be detected in the growth of money and volume of credit with economic growth in the long term. On the other hand, the monetary policy rate and credit availability significantly negatively affect economic growth in the long term. These consequences explain that inefficiency exists in the financial environment or monetary policy instruments in isolated applications without considering the context of the financial sector, which needs to be more durable and realistic enough to be effective. In addition, the analysis with the Autoregressive Distributed Lag (ARDL) model for both levels and the first difference, confirm the existence of a long-run cointegration among monetary policy measures and economic growth. Therefore, the negative coefficients on both the monetary policy rate and the availability of credit indicate that monetary policy, if adjusted effectively, can serve as a powerful tool to initiate the desired economic expansion. This finding instills hope and optimism for the future of Nigeria's economy.