An Evaluation of the Impact of Monetary Policy on the Real Sector in Nigeria

Abstract

The objective of the study is to assess the effect monetary policy variables on savings, national income and investment as proxies to the real sector economy in Nigeria. This is relevant to the economy as differences in transmission mechanisms can generate asymmetric behaviour between monetary policy and real sector. The paper explores the significance of this channel using VAR model, as tests suggest the null hypothesis of no significant effect was rejected and a conclusion was drawn that one of the monetary variables such as money supply exert a significant impact on the real sector economy. The main implication to be drawn from these results seems to be the importance of monetary policy channel in regulating real sector economy in Nigeria. The effect of money supply shocks on real sector variables are similar and seem to be significant too. Thus with respect to this result, monetary policy regulators should use money supply regularly as a mechanism to improve real sector economy in Nigeria.

DOI: 10.5901/mjss.2015.v6n2p361