The Composite Effects of Monetary Policy on Bank Lending and Nigeria Economic Performance: Further Empirical Evidence

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Samuel Oluwapelumi Olofınlade
Bolanle Aminat Azeez

Abstract

The study investigates the composite effects of monetary policy on bank lending and Nigeriaeconomic performance: Using the Unrestricted SVAR approach for the period of 35 years whichcover 1986-2020 The study addressed broad money supply, monetary policy rate, aggregatelending to private and public sectors, exchange rate and inflation rate as monetary policyindicators while real gross domestic product was regressed as economic performance. This studyadopts secondary data sourced from Central bank of Nigeria and National Bureau of statistics.The econometric approach was carried out on aforementioned Macroeconomic variables usingdescriptive analysis, correlation analysis and econometric modelling of structural VAR inevaluating and analysing the composite effects of monetary policy on banks’ lending and itseffects on Nigeria economic performance. The estimation techniques of Augmented Dickey Fuller(ADF) stationarity test was also applied on the macroeconomic variables. The result of findingsfrom structural VAR discovered that monetary policies on banks’ lending and economicperformance were significantly correlated. Individually, the result revealed that money supply,monetary policy rate, exchange rate, and bank lending have positive and significant effect oneconomic performance while inflation had negative but insignificant effect on economicperformance. The findings outcome reveals that MPR and BL are the major factors that permeateeconomic performance this implies that monetary policy rate and lending to private and publicsectors exerts meaningful influence on economic performance in Nigeria. The negative trend ofinflation is thereby sending bad signals to investors. Hitherto, the rate of inflation and exchangeis always on the increase. Government is implored to put forward proactive measures andprogrammes that can significantly bring down the increasing exchange rate and inflation ratewhich has sent many investors away from doing business in Nigeria.

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