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.
References
Abbas, S. I., Hakeem, O. A., Mijinyawa, S., Ahmed, B., & Tijjani, B. T. (2022). Exchange rate volatility and domestic investment: Evidence from Nigeria. International Journal of Economics and Development Policy, 5(1), 13–22.
Abdullahi, K. (2022). Monetary policy impact on private sector performance in Nigeria. Journal of Economics and Allied Research, 7(3), 536–7447.
Adebiyi, M. A. (2002). The role of real interest rates and savings in Nigeria. First Bank of Nigeria Plc Quarterly Review, March 2002.
Agrawal, G., & Khan, M. A. (2011). Impact of FDI on GDP: A comparative study of China and India. International Journal of Business and Management, 6(10), 71–79.
Ahuja, H. L. (2013). Modern economics. S. Chand & Company Pvt. Ltd.
Ainabor, A. E., Shuaib, I. M., & Kadiri, A. K. (2014). Impact of capital formation on the growth of Nigerian economy 1960–2010: Vector error correction model (VECM). School of Business Studies, Readings in Management and Social Studies, 1(1), 132–154.
Akinlo, E. A., & Onatunji, G. O. (2020). Exchange volatility and domestic investment: Evidence from twelve ECOWAS countries. African Journal of Economic Review, VIII(II), July.
Ali, M. (2018). Inflation, interest and exchange rate effect of the stock market prices. Journal of Business and Economic Options, 1(2), 38–43.
Ambya, A., & Saimuel, S. (2020). Relationship between government spending and private investment in Indonesia. International Journal of Advanced Science and Technology, 29(4), 5248–5258.
Anyanwu, J. C. (1988). Monetary economics: Theory, policy and institutions. Hybrid Publishers Ltd.
Awad, M. I., Al-Jerashi, K. G., & Alabaddi, M. (2021). Determinants of private domestic investment in Palestine: Time series analysis. Journal of Business and Social Economic Development, 1(1), 71–86.
Awode, S. S. (2019). Fiscal policy management and private investment in Nigeria: Crowding-out or crowding-in effect? Jurnal Ekonomi & Studi Pembangunan, 20(1), 11–26.
Ayeni, R. K. (2020). Determinants of private sector investment in a less developed country: A case of the Gambia. Cogent Economics and Finance, 8(1), 1–11.
Ayunku, P. E., & Otele, J. (2023). Fiscal policy and gross capital formation in Nigeria. EPRA International Journal of Economics, Business and Management, 10(10), 61–70.
Bora, I., Kirikkaleli, D., Zoaka, J., Bekun, F., & Ekwueme, D. (2020). Investigating monetary policy dynamics in Nigeria: The role of private investment. Management Science Letters, 10(1), 247-254.
Central Bank of Nigeria. (2013). Economic report fourth quarter 2013. https://www.cbn.gov.ng/out/2014/rsd/cbn%20economic%20report%20for%20fourth%20quarter%202013.pdf
Charles, F. B., & Okoro, U. C. (2019). Macroeconomic variables and private investment: A two-dimensional study from Nigeria's economy. American International Journal of Business and Management Studies, 1(1), 20–37.
Chen, S., & Tzu‐Yu Lin, T. (2019). Do exchange rate shocks have asymmetric effects on reserve accumulation? Evidence from Emerging Markets. Scandinavian Journal of Economics, Wiley Blackwell, 121(4), 1561-1586.
Congdon, T. (2021). Can monetary policy run out of ammunition? The role of the money equities interaction channel in monetary policy. Economic Affairs, 41(1), 21–37.
DeLong, J. B., & Summers, L. H. (1991). Equipment investment and economic growth. The Quarterly Journal of Economics, 106(2), 445–502.
Ebisine, L., & Oki, B. (2021). Monetary policy and domestic private investment in Nigeria. International Journal of Multidisciplinary Research and Analysis, 4(7), 904–912.
Ejedegba, R. U. (2022). Macroeconomic instability, policy uncertainty, and investment performance: The case of Nigeria. International Review of Economics & Finance, 83(9), 1–17.
Etim, N. (2023). Effect of exchange rate depreciation on gross domestic investment. SSRN Electronic Journal.
Foday, J., & Jallow, O. (2020). The impact of interest rate and inflation on the exchange rate of the Gambia. International Journal of Economics, Commerce and Management, VIII(1), January.
Ganchev, G., & Todorov, I. (2021). Taxation, government spending and economic growth: The case of Bulgaria. Journal of Tax Reform, 7(3), 255–266.
Gao, H., Kulish, M., & Nicolini, J. P. (2020). Two illustrations of the quantity theory of money reloaded (Working Paper No. 774). Federal Reserve Bank of Minneapolis.
Greenwood, J., & Hanke, S. (2022). On monetary growth and inflation in leading economies: Relative prices and the overall price level. Economic Affairs, 42(2), 288–306.
Harrod, R. F. (1948). Towards a dynamic economics. Macmillan Publishers.
Hasan, I., Wachtel, P., & Zhou, M. (2009). Institutional development, financial deepening and economic growth: Evidence from China. Journal of Banking & Finance, 33, 157–170.
Hicks, J. R. (1950). A contribution to the theory of the trade cycle. Oxford University Press.
Jelilov, G., & Muhammad, Y. M. (2015). Economic growth and energy consumption in Nigeria. The Empirical Economics Letters, 1187–1196.
Jhingan, M. L. (2003). Macro-economic theory (11th ed.). Vrinda Publications (P) Ltd.
Kabir, A. (2022). Monetary policy impact on private sector performance in Nigeria. Journal of Economics and Allied Research, 7(3), 1–12.
Keynes, J. M. (1960). The general theory of employment, interest and money. Macmillan & Co.
Khan, A. H. (1988). Macroeconomic policy and private investment in Pakistan. The Pakistan Development Review, 27, 277–291.
Khan, S.M (2010). The designs and effects of monetary policy in Sub-Saharan African countries. Series. Peterson Institute for International Economics working paper, 10 (11), 1-8.
Leshoro, L. A. T., & Wabiga, P. (2023). The asymmetric effects of interest rates on private investment in South Africa. Economica Audoe, 19(3), 161–182.
Lin, M. Y. (2005). Foreign exchange reserves and inflation: An empirical study of five East Asia economies. Aletheia University and National Chengchi University.
Mofatt, M. (2015). Definition of exchange rate. http://www.economics.about.com/cs/economicsglossary/exchangerate
Ntie, M., & Badjie, M. (2021). The effects of interest rate on economic growth: Further insights from the Gambia. Academic Journal of Economics and International Finance, 13(2), 100–105.
Nwamuo, C. (2020). Impact of fiscal policy on the economic growth in Nigeria: An empirical analysis. European Journal of Business and Management, 12(12), 37–50.
Nwankwo, S. N. P., & Allison, P. U. (2021). Effect of macroeconomic determinants on private sector investments in Nigeria, 1986–2020. Contemporary Journal of Management, 3(4), 14–27.
Ogbonna, C. A. (2020). Empirical analysis of exchange rate fluctuations and gross fixed capital formation in Nigeria. International Journal of Research in Social Science and Humanities, 1(3), 36–46.
Omorokunwa, O. G., & Ajao, M. G. (2019). Fiscal policy and public-private investment in Nigeria. Amity Journal of Finance, 4(1), 16–29.
Oyakegha, E. S., & Arepo, L. A. (2022). Monetary policy and private sector performance in Nigeria (1995–2020). African Journal of Accounting and Financial Research, 5(1), 35–44.
Roodman, D. (2009). A note on the theme of too many instruments. Oxford Bulletin of Economics and Statistics, 71, 135–158.
Tobias, O., & Manbo, C. (2012). The effect of monetary policy on private sector investment in Kenya. Journal of Applied Financial and Banking, 2(2), 239–287.
Windmeijer, F. (2005). A finite sample correction for the variance of linear efficient two-step GMM estimators. Journal of Econometrics, 126, 25–51.
Downloads
Published
Issue
Section
License
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
UMYU-JAFR recognizes the importance of protecting authors’ intellectual property while promoting the free exchange of knowledge. The journal adopts a copyright-retention model that empowers authors to maintain ownership of their work while granting the journal rights necessary for publication and dissemination.
1. Copyright Ownership
Authors publishing with UMYU-JAFR retain full copyright and publishing rights to their work. By submitting a manuscript, authors agree to grant the journal a non-exclusive license to publish, reproduce, distribute, and archive the article in all forms and media for the purpose of scholarly communication.
2. Licensing Terms
All articles are published under the Creative Commons Attribution–NonCommercial (CC BY-NC) license. This license permits others to share and adapt the material for non-commercial purposes only, provided that proper credit is given to the original author(s) and UMYU-JAFR as the source. Commercial reuse requires written permission from both the author and the editorial office.
3. Author Rights
Authors are free to deposit all versions of their manuscript in institutional or public repositories without embargo, use their published article for teaching and conference presentations, and include their work in future theses or compilations, provided proper citation to the journal is made.
4. Publisher’s Rights
Upon publication, UMYU-JAFR retains the right to host, index, and disseminate the article through its website and partner databases, and to archive the content in long-term preservation systems.
