An econometric analysis of the effect of financial sector reform and monetary policy on Nigerian economy

 

Ajayi L. B.

 

Research Article | Published September 2014

Journal of Economics and International Business Management, Vol. 2(3), pp. 73-81

 

Department of Banking and Finance, Ekiti State University, Ado-Ekiti, Nigeria.

 

*Corresponding author. E-mail: boblaw2006@yahoo.com. Tel: 08033881328.

 

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This study examines the effect of financial sector reform and monetary policy on Nigeria economy. The study used Nigeria time series data from 1980 to 2012 and employed econometric technique in its analysis by regressing Credit allocation to Private Sector, Liquidity Ratio and Interest Rate on Gross Domestic Product. It was found out that all variables truly affect Gross Domestic Product both in the short and long-run. The causality test shows that only Credit Allocation to Private Sector and Interest Rate caused Gross Domestic Product while the other variable is caused by Gross Domestic Product. The study concludes that the reform measures were not inherently defective and that the management of the reform process skillfully would go a long-way in achieving the goals of the monetary and fiscal authorities and the country at large. It is then recommended that the Central Bank of Nigeria should make efforts to stabilize prices, discourage fiscal indiscipline, reduce inflation and stabilize exchange rates. Government should ensure proper integration and implementation of financial sector and monetary policies that would increase the flow of investible funds to the private sectors and improves the capacity of banks to extend credit to the prospective investors at a low interest rate. Monetary authority should also ensure healthy competition in the banking industry. Finally, Strong macroeconomic policies should be pursued to maintain and stabilize the economy by laying down strict prudential rules and regulations to stabilize and strengthen the banking industry.

 

Keywords: Financial reforms, economic growth, monetary policy.