| Title: | Monetary Policy and Balance of Payments Accounts Nexus: Evidence from Nigeria |
| Author(s): | Ewubare Dennis Rosemary Chioma, Wokekoro Elvis Ozulem & Nyeche Ezebunwor |
| Abstract: | The study investigated the effect of monetary policy on balance of payment accounts of Nigeria from 1982 to 2023. The variables of the study consisted of Total account balance (TAB) which proxy for balance of payments account, nominal interest rate (NIR), exchange rate (EXR), money supply (MSP), and domestic assets prices (DAP) which are proxy for monetary policy. The research data were sourced from the World Development Indicator of the World Bank. The model estimation was achieved using Autoregressive Distributed Lags (ARDL) method with generated short run and long run results from the analysis. The result showed that in the short run, EXR and DAP had mixed effect on TAB. While NIR significantly increased TAB in the short run, growth in MSP significantly led to a fall in TAB in Nigeria. In another light, the long run result disclosed that at 5 percent level, NIR had no evidence of long run impact on TAB in Nigeria. On the other hand, there was empirical evidence of significant long run impact of EXR and DAP on TAB respectively. However, the study established that in the long run, growth in MSP significantly led to a decline in TAB position in the economy. Overall, the result of the study suggests that monetary policy instruments such as NIR, EXR, MSP and DAP can be used by policy makers in adjusting total account position in the economy. Further analysis conducted by the study on post estimation basis showed that the model, had structural stability and was free from the issues of serial correlation, heteroskedasticity, and misspecification errors at 5 percent level of significance. The study however, recommended that expansionary monetary policies by the Nigerian government to regulate money supply should be highly monitored to mitigate its detrimental impact on the total account balance. |
| Keywords: | Monetary policy, Total Account, Interest rate, Exchange rate, Money supply |
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