Monetary Policy Measure as an Instrument of Economic Stabilization

Monetary Policy Measure as an Instrument of Economic Stabilization

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Abstract on Monetary Policy Measure as an Instrument of Economic Stabilization

This paper enables the researcher to examine monetary policy measure as an instrument of economic stabilization. In doing this, the Ordinary Least Squares Method (OLS) is used to analyze data between 1981 to 2011. An overview of the results of the Ordinary Least Squares (OLS) Estimation Method, presented above is an indication that the value of the coefficient of determination (R2) stood at 0.95. This is an indication that about 95per cent of the total systematic variation in the dependent variable (GDP) has been explained by the explanatory variables. This means that only about 5 per cent of the total systematic variables is left unexplained, hence, captured by the stochastic error term in the model. The result of the analysis shows that monetary policy presented by money supply exerts a positive impact on GDP growth. For most economies, the objectives of monetary policy include price stability, maintenance of balance of payments equilibrium, promotion of employment and output growth, and sustainable development. These objectives are necessary for the attainment of internal and external balance, and the promotion of long-run economic growth. Evidence in the Nigerian economic growth or economic activity. Over the years, Nigeria has been controlling her economy through variation in her stock of money. Consequent upon the effect of the collapse of oil price in 1981 and the B.O.P deficit experienced during this period, various methods of stabilization ranging from fiscal to monetary policies were used. Also, the core finding of this study shows that inflation rate, exchange rate and external reserve are significant monetary policy instruments that drive growth in Nigeria. It is therefore recommended that the establishment of primary and secondary government bond markets that can also increase the efficiency of monetary policy and reduce the government’s need to rely on the central bank for direct financing. The recommendations are that monetary policy should facilitate a favourable investment climate through appropriate interest rates, exchange rate and liquidity management mechanism and the money market should provide more financial instruments that satisfy the requirement of the ever-growing sophistication of operators. It also helps the researcher with some knowledge on how to use the monetary instruments to control and regulate the circulation of funds in a country.

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