ABSTRACT
This is to examine the impact of monetary policy on
investment in' Nigerian ECPMP and the objectives are as follows: To
ascertain if monetary policy instruments have
impact on investment in Nigeria, if it does, to ascertain the
relationship, To examine if long run relationship exists between monetary
policy instruments and investment in Nigeria, To
examine if causality exists between
monetary policy instruments and investment in Nigeria.
Finally, monetary Nigerian
Economy, only an effective monetary policy can guarantee price / stability, which is necessary condition of sustainable growth and
development of Nigerian Economy.
TABLE OF
CONTENTS
PAGE
Title Page
Certification
Dedication
Acknowledgement
Abstract
CHAPTER ONE:
INTRODUCTION
1.0 Background
to the Study.
1.1 Statement of
the Problem
1.2 Objectives
of the Study
1.3 Hypothesis
of the Study
1.4 Significance
of the Study
1.5 Research
Methodology
l.6 Scope of the Study
1.7 Plan of the
Study
References
CHAPTER TWO:
LITERATURE REVIEW
2.0 . Introduction
2.1 Theoretical
Review
2.1.1 Monetary Policy.
21.2 Objectives of
Monetary. Policy
2.1.3 Tools of Monetary Policy
2.2 The
Effectiveness of Monetary Policy
2.2.1 Investment
2.2.2 Investment
and Capital
2.2.3 Types of
Investment
2.3 Empirical
Review
2.3.1 Fisher's Theory
of Capital and Investment
2.3.2 The Classical
View of Investment
2.3.3 The Y -Theory
of Investment
2.3.4 . Limitation of Previous Studies
References
CHAPTER THREE: RESEARCH METHODOLOGY
3.0 Introduction
3.1 Model Specification
3.2 Specification
of Model 1
3.2.1 Specification of Model 2
3.3 Evaluation Procedure
3.4 Justification
of the Model
3.5 Analytical
Techniques
3.6 Data
Required and Sources
References
CHAPTER FOUR:
DATA ANALVSIS, PRESENTATION AND
INTERPRETATION
OF RESULTS
4.0 Introduction
4.1 Unit
Root Test .
4.2 Co-Integration Results
4.3 The Presentation of Model 1
References
CHAPTER FIVE:
SUMMARY, CONCLUSION AND ECOMMENDATIONS
5.1 Summary of
Findings
5.2 Conclusion
5.3 Recommendations
References
Bibliography
Appendix
CHAPTER ONE
INTRODUCTION
1.0 BACKGROUND TO THE
STUDY
Financial instability is the new challenge for monetary
policy. Most studies indicate that the typical
patterns of financial crisis include prolonged unwinding of investment. These phenomena challenge modern monetary policy.
Monetary policy is the process by which the government,
central bank, or monetary authority of a country controls (i) the supply of
money, (ii) availability of money, and (ii)cost of money of rate of interest, in order to attain a set of objectives oriented towards
the .growth and stability of the economy.
Monetary theory provides insight into how to craft optimal monetary
policy. '
Monetary policy is referred to as either being an
expansionary policy or a contractionary policy. Where an expansionary policy
increases the total money supply in the economy, the contractionary policy decreases
the total money supply in the, economy. ,Expansionary policy is traditionally used
to combat unemployment in a recession by lowering the interest rates while contractionary
policy involves raising interest rate in order to' combat inflation. Monetary
policy is, contrasted with fiscal
policy, which refers to government borrowing, spending and. taxation.
Monetary policy rests on the relationship between the
rates of interest in an economy, that is
the price at which money can' be borrowed and the total supply of money. Monetary policy uses a variety of tools to control
one or both of
these, to influence outcomes like economic growth (investment), exchange rate
with other currencies and employment. Where currency is under a monopoly,
of issuance, or where there is a regulated system of issuing currency through
banks which are tied to a central bank, the system authority has the ability to alter the money supply and thus
influence the interest rate (in order to achieve' Policy goals). The beginning
of monetary policy as such comes from the late 19th,century, where
it was used to maintain the gold standard.
A policy is referred to as contractionary if it reduces the size of the money supply,
or-raises the interest rate, An expansionary policy increases the size of the
money: supply, or decreases' the interest rate. Furthermore, monetary policies are described, as follows: accommodative,
if the interest rate set by the monetary authority is 'intended to create economic growth: neutral if it is intended neither to create economic growth nor combat
inflation: or tight, if intended to
reduce inflation.
There are several monetary policy tools available to
achieve these ends: increasing interest rate, by flat: reducing the monetary
base and increasing reserve requirements. All have the effect of contracting
the money supply; and if reserved, expand the money supply. Since the 1970s,
the BRETTON WOODS system still
ensured that most nations would form the
two policies separately,
Within almost all modem nations, special institutions
(such as ,the Bank of England, the European Central Bank the Federal Reserve in
the United States, The reserve Bank, of India, the Bank of Japan or the Bank of
Canada) ,exist which have the task of executing the monetary policy and often
independently of the ,executive. In general, these institutions are called
central banks and often have oilier responsibilities such as supervising .the
full operation of the financial system.
The primary tool of monetary policy is open market operations. This entails managing
quantity of money in circulation through the buying and selling of various
credit instruments, foreign currencies or commodities. All of-these purchases
or sales results in more or less base currency entering or leaving market
circulation.
Usually the short term goal of open market operation is
to achieve a specific short term interest rate target in other instances, monetary policy might instead entail the
targeting of a specific exchange rate relative to some foreign currency or else
relative to gold. For example, in the case of USA, the Federal Reserve targets
the federal fund rate, the rate which member banks lend to one another
overnight, However the monetary policy of China is to target the exchange rate
between the Chinese Renminbi and a basket of foreign currencies.
The other primary means of conducting monetary policy
include:
(i) Discount
window lending (lender of last resort)
(ii) Fractional
deposit lending (changes in the reserve requirement)
(iii) Moral suasion (cajoling certain market
players to achieve specified. outcomes)
(iv) "Open
mouth operation" (talking monetary policy with the market),
1.1 STATEMENT OF THEPROBLEM
The problems facing the Nigeria economy, today include
increasing level of unemployment; high level/rate of inflation, over-dependence
on the oil sector that is oil exports; slow pace of growth and development in
real output. And other
problems may include inadequate policies, unstable pressures on the
balance of payment (BOP), persistent weakness of the naira value in foreign exchange
'market (Forex); and high/interest rates due partly to inflationary
expectations, and partly to imperfections in the financial markets (both money
and capital markets). Finally is the uneven income distribution, which has
militated deeply against the decline in output
and living standard of the people. It, nevertheless; is pellucid that, despite
the exercising of monetary policy measures, the situation seems Unabated.
Over the years the central monetary authority (The
Central Bank of Nigeria) has been on the active path of trying to combat the
above mentioned problems by adopting one monetary policy after another taking
note of the effect(s) which these, may have on various 'sectors of the economy.
The latest of these is the recent bank
recapitalization of N25 billion and regulation of bank lending through the
interest rate of about 17%. These have had their tolls in the economy by
affecting the level of investment considerably and .as we must have noticed,
certain of the aforementioned problems persist. . This research project,
comparatively,· is to look. at the Monetary Policy Impact on investment in
Nigeria as-investment is a key factor in determining the level of performance
of the economy. Hence we ask the following:
·
How far has the
various monetary policy Instruments impacted in the investment atmosphere of
the Nigerian economy?
·
Does these exist
any relationship between the level of investment and the monetary policy
instruments in Nigeria?
1.2 OBJECTIVES OF THE STUDY
The general objective of this study is to examine
monetary policy in Nigeria in relation to its impact on investment. To achieve
that, this topic will pursue the specific under listed objectives.
(i) To ascertain if monetary policy instruments have impact
on investment in Nigeria, if it does to ascertain the relationship.
(ii) To examine if long run relationship exists
between monetary policy instruments and investment in Nigeria .
(iii) To examine if causality exists between
monetary policy instruments and Investment in Nigeria.
1.3 HYPOTHESES OF THE STUDY
The following hypothesis will guide this study:
(i) Ho:
Monetary policy instruments do not have any significant impact on investment in
Nigeria,
Hi: Monetary policy instruments have significant impact on
investment in Nigeria.
(ii) Ho:
long run relationship does not exist between monetary policy instruments and
Investment in Nigeria
Hi: long run relationship exists between monetary, policy
instruments and investment in Nigeria
(iii) Ho:
There is no causality between monetary Instruments and investment in Nigeria.
Hi: There is no causality between monetary instruments and investment in Nigeria
1.4 SIGNIFICANCE
OF THE STUDY
Investors: Both the foreign and local investors will
benefit from this work since the
research exposes the impact of several monetary policy regimes on investment.
This will enable the investors to know when to and when not to invest.
Policy Makers: This research will also be beneficial to
the policy makers seeing that the work .will reveal the impact of monetary
policy instruments on· investment in. Nigeria. This will help the policy makers
know the efficient monetary policy to make regarding certain investments:
foreign or local.
1.5 RESEARCH METHODOLOGY
The method to be used in approaching this subject matter
shall be descriptive. It will involve the employment of tabular analysis of
data and graph or both. The source of data for the purpose of this essay shall
be through primary and secondary sources. This will however be through
regression analysis. The secondary data shall include information from journals
of commercial banks, specialized banks and the Central Bank of Nigeria (CBN). Also,
collections of information from the financial statement of some specialized
credit bodies.
1.6 SCOPE OF THE STUDY
This study covers the Nigerian economy from 1970 to 2096.
That is, a period of thirty seven (37) years. The choice of this period is
based on the availability of data and the fact that it is a time series analysis.
1.7 PLAN OF THE STUDY
The project work is divided into five chapter which are
as follows;
Chapter one consists of the introduction, statements of
the problem, aims and objectives of the study, research questions, research hypotheses,
research methodology, scope of the study, significance of the study. Chapter
two consists of the literature review
of the study. Chapter three consists of the research methodology. Chapter four
consists of the data analysis, presentation and interpretation of the result
finding while chapter five consists of
the summary of finding, conclusion and recommendation, then the bibliography.
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