AN INVESTIGATION INTO THE IMPACT OF MONETARY POLICY ON THE ECONOMIC DEVELOPMENT IN NIGERIA
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- Background of the study
- Background of the study
In many cases, monetary management is an essential component of macroeconomic management. Macroeconomic management is typically the responsibility of a state's Monetary Authority or, alternatively, the Central Bank acting on the state's behalf. Monetary policy is therefore a tool for the monetary management of a country. It involves the use of some combinations of instruments by the Central Bank to influence the availability and cost of credit and/or money in the domestic economy with the goal of achieving macroeconomic balance or stability through economic growth. This is accomplished through the utilization of monetary policy instruments (Anyanwu, 2020). On the other hand, the term "macroeconomics policy" refers to the actions taken by government agencies responsible for the conduct of economic policy in order to achieve some desired objective of policy through the manipulation of a set of instrumental variables. This can be seen as a contrast to microeconomics policy, which refers to the actions taken by individuals. Two distinct groups of variables, referred to as "target variables" and "instrumental variables," are distinguished under this paradigm. Target variables are those that the government attempts to achieve desirable values for, and they are the short-term aims of macroeconomic policy (Ezeduji, 2022). Full employment, price stability, a satisfactory pace of economic growth, an equal distribution of income, and balance of payments equilibrium are the primary variables or goods that should be targeted for improvement. On the other hand, instrumental variables are those that the government is able to influence in order to accomplish the economic goals it has set for itself. They must be categorized as exogenous variables because the government must be able to establish their values in isolation from the rest of the variables that make up the system. As a result, macroeconomic policies are concerned with the different activities that policymakers take in order to change the levels of employment, the price level, output, income distribution, and external balance in the appropriate directions through the manipulation of relevant policy instruments (Fisher, 2021). Monetary policy, fiscal policy, exchange rate policy, and income policy are the primary pillars of Nigeria's macroeconomic framework. However, the efficient management of monetary policy is a crucial pre-requisite in order to guarantee adequate liquidation in the banking system and sectoral credit distribution to the vulnerable. This is the most significant point to take away from this. Various parts of the economy, like the power industry, agriculture, the airline industry, small and medium-sized businesses, etc. Because of this, it is clear that the management of monetary policy encompasses more than just maintaining price stability, particularly in emerging countries; rather, it has a dual mandate to maintain both price stability and the sustainability of economic growth. The level of money stock and/or the interest rate can be influenced by monetary policy. This has an effect on the availability, value, and cost of credit, which are all out of sync with the level of economic activity. Bernanke (2021). According to Bernanke (2022) and Blinder, macroeconomic aggregates like output, employment, and prices are in turn affected by the stance of monetary policy through a number of channels. These channels include interest rate or money; credit, wealth or portfolio; and exchange rate channels (2022). This appropriately signifies that the Monetary Authority applies discretionary power to affect the money stock and interest rate in order to make money either more expensive or cheaper depending on the prevalent economic conditions and policy stance that is targeted toward achieving price stability. Bernanke (2022) defines monetary policy as "nothing more than a conscious endeavor to control the money supply and credit conditions for the purpose of accomplishing certain broad economic objectives." This is a simple and accurate explanation of what monetary policy is. In general, the majority of monetary authorities or central banks have been tasked with supporting economic growth, keeping inflation under control, and maintaining a good balance of payments position in order to protect the native currency's value relative to other currencies.
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