This study evaluates the direct and indirect interest rate channels of monetary policy in Nigeria. Quarterly data from 1993 to 2019 were sourced from the Central Bank of Nigeria’s Statistical Bulletin. The outcome variables were output and inflation and each channel consists of three steps of equations. Three Stage Least Squares estimation technique was used to perform a step-by-step estimation and evaluation of the channels. Then, the overall effect of monetary policy on output and inflation was determined.
Monetary policy is one of the two policies used by policymakers to adjust macroeconomic fundamentals when they deviate from their targets and to achieve a specific macroeconomic goal like full employment and price stability. The effectiveness of monetary policy in achieving these targets depends on the effectiveness of the monetary policy transmission channels. Theoretically, the interest rate channel of monetary policy transmission works directly through its effect on investment and indirectly through its effect on bank lending, asset prices, and exchange rate.
Table of Contents
- CHAPTER ONE: INTRODUCTION
- CHAPTER 2: BACKGROUND OF THE STUDY
- Overview of Monetary Policy in Nigeria
- The Economic Environment
- Policy Regimes
- Monetary Targeting
- Inflation Targeting
- Price Targeting
- Exchange Rate Targeting
- Monetary Dynamics
- CHAPTER THREE: LITERATURE REVIEW AND THEORETICAL FRAMEWORK
- Theoretical Review
- Direct Interest Rate Channel
- Exchange Rate Channel
- Asset Price Channel
- Bank Lending Channel
- Methodological Review
- Empirical Review
- Framework of Analysis
- CHAPTER FOUR: EMPIRICAL ANALYSIS
- Methodology
- Data and Data Sources
- Description of Variables
- Descriptive Statistics and Pre-Estimation Test
- Estimation Result
- Analysis of the Direct Interest Rate Channel
- Analysis of the Indirect Channel: Bank Lending
- Analysis of the Indirect Channel: Exchange Rate
- Analysis of the Indirect Channel: Asset Prices
- Discussion of Results
- CHAPTER FIVE: SUMMARY AND CONCLUSION
Objectives and Key Themes
This research work evaluates the interest rate channel of monetary policy in Nigeria. The study aims to analyze the effectiveness of this channel in influencing key macroeconomic variables.
- Effectiveness of the interest rate channel in transmitting monetary policy.
- Analysis of different channels (direct and indirect) through which interest rate changes impact the economy.
- Empirical investigation of the relationship between monetary policy rates and macroeconomic indicators.
- Assessment of the Nigerian economic environment and its influence on monetary policy transmission.
- Evaluation of different monetary policy regimes implemented in Nigeria.
Chapter Summaries
CHAPTER ONE: INTRODUCTION: This chapter sets the stage for the research by outlining the problem statement, which focuses on the effectiveness of the interest rate channel in transmitting monetary policy within the Nigerian context. It details the study's objectives, methodology (primarily employing Three Stage Least Squares estimation), scope, and limitations, providing a clear roadmap for the subsequent chapters. The plan of the study is also presented, highlighting the logical flow of the research.
CHAPTER 2: BACKGROUND OF THE STUDY: This chapter provides essential context by offering an overview of monetary policy in Nigeria, examining its historical evolution and the different policy regimes employed (monetary targeting, inflation targeting, price targeting, and exchange rate targeting). It also analyzes the broader economic environment and monetary dynamics, creating a robust foundation for understanding the complexities of the Nigerian monetary policy landscape. Key aspects like the country's economic structure and its impact on monetary transmission are discussed.
CHAPTER THREE: LITERATURE REVIEW AND THEORETICAL FRAMEWORK: This chapter presents a comprehensive review of existing literature related to monetary policy transmission, focusing specifically on the interest rate channel. It explores both theoretical frameworks (examining direct and indirect channels such as exchange rate, asset price, and bank lending channels) and empirical studies conducted in similar contexts. The chapter then lays out the methodological approach and the analytical framework used in the empirical analysis of subsequent chapters.
CHAPTER FOUR: EMPIRICAL ANALYSIS: This chapter presents the core empirical findings of the study. It details the econometric methodology employed (Three Stage Least Squares), data sources, and variable descriptions. The results of the estimation process are thoroughly examined, and analyses are conducted on the direct interest rate channel and the indirect channels (bank lending, exchange rate, and asset prices). The chapter concludes with a discussion of the overall results and their implications for monetary policy in Nigeria.
Keywords
Monetary policy, interest rate channel, Nigeria, macroeconomic variables, monetary transmission, Three Stage Least Squares (3SLS), inflation, exchange rate, bank lending, asset prices, monetary policy regimes, empirical analysis.
Frequently Asked Questions: Evaluation of the Interest Rate Channel of Monetary Policy in Nigeria
What is the main focus of this research?
This research evaluates the effectiveness of the interest rate channel in transmitting monetary policy in Nigeria. It analyzes how changes in interest rates influence key macroeconomic variables.
What are the key objectives of the study?
The study aims to determine the effectiveness of the interest rate channel in transmitting monetary policy, analyze both direct and indirect channels through which interest rate changes impact the economy, empirically investigate the relationship between monetary policy rates and macroeconomic indicators, assess the Nigerian economic environment's influence on monetary policy transmission, and evaluate different monetary policy regimes implemented in Nigeria.
What methodologies are used in this research?
The research primarily employs Three Stage Least Squares (3SLS) estimation for its empirical analysis. The study also involves a comprehensive literature review and a detailed analysis of the Nigerian economic environment and its historical monetary policy regimes.
What are the key themes explored in the research?
Key themes include the effectiveness of monetary policy transmission through the interest rate channel, the role of different transmission channels (direct and indirect – bank lending, exchange rate, and asset prices), the impact of the Nigerian economic environment on monetary policy effectiveness, and an evaluation of various monetary policy regimes employed in Nigeria.
What are the different monetary policy regimes discussed?
The study examines monetary targeting, inflation targeting, price targeting, and exchange rate targeting regimes implemented in Nigeria.
What theoretical frameworks are considered?
The research explores theoretical frameworks for the direct interest rate channel and indirect channels including the exchange rate channel, asset price channel, and bank lending channel.
What data is used in the empirical analysis?
The empirical analysis uses macroeconomic data relevant to monetary policy transmission in Nigeria. Specific data sources and variable descriptions are detailed in Chapter Four.
What are the key findings of the empirical analysis?
Chapter Four presents the core empirical findings, examining the results of the 3SLS estimation and analyzing the direct and indirect channels' influence on macroeconomic variables. A discussion of the implications of these findings for monetary policy in Nigeria is also included.
What is the structure of the research paper?
The research is structured into five chapters: Introduction, Background of the Study, Literature Review and Theoretical Framework, Empirical Analysis, and Summary and Conclusion. Each chapter focuses on a specific aspect of the research, building a comprehensive analysis of the interest rate channel's effectiveness in Nigeria.
What are the keywords associated with this research?
Keywords include Monetary policy, interest rate channel, Nigeria, macroeconomic variables, monetary transmission, Three Stage Least Squares (3SLS), inflation, exchange rate, bank lending, asset prices, monetary policy regimes, and empirical analysis.
- Quote paper
- Riliwan Oladepo (Author), 2021, The Interest Rate Channel of Monetary Policy in Nigeria. An Evaluation, Munich, GRIN Verlag, https://www.grin.com/document/1172300
