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MONETARY POLICY AND EXCHANGE RATE NEXUS: EVIDENCE FROM NIGERIA

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 Format: MS WORD ::   Chapters: 1-5 ::   Pages: 60 ::   Attributes: secondary data, Data Analysis ::   136 people found this useful
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CHAPTER ONE

1.0 INTRODUCTION

1.1 BACKGROUND

As the exchange rate continues to change, the monetary policies in Nigeria continue to change. Exchange rate play a significant role in the economic development in Nigeria as it affects some of the macro economic variables (domestic price indicator, profitability of traded goods and services, allocation of resources and investment decisions) which in turn according to (Ajakaiye, 2001) shows that monetary authorities and private sectors seek stability in these variables. The exchange rate and monetary policies is kind of dependent on each other as they play a significant role in the determination of the economic development in Nigeria.

According to (Todaro, 2004) stated that as a matter of fact, exchange rate fluctuations are now the bedrock for all economic activities globally, portraying exchange rate management as a major determinant of many countries monetary policies.

In Nigeria, maintaining a realistic exchange rate for the naira is very crucial, given the structure of the economy, and the need to minimize distortions in production and consumption, increase the inflow of non-oil export receipts and attract foreign direct investment. Moreover, the persisting problems of import dependency, capital flight, and lack of motivation for backward linkages in the production process need to be addressed, amongst others. Exchange rate and monetary policy are therefore key tools in economic management and in the stabilization and adjustment policies in developing countries like Nigeria. In most developing countries, low inflation and international competitiveness have become major policy targets. The real exchange rate is a measure of international competitiveness, while inflation mostly emanates from monetary expansion, currency devaluations and other structural factors. Despite the importance of monetary and exchange rate policies in economic management, a few studies have been done on Nigeria to assess the relationship between them.

The Central Bank of Nigeria (CBN) as the highest monetary authority in Nigeria has continued to play the traditional role expected of a central bank, which is the regulation of the stock of money in such away as to promote the social welfare (Ajayi, 1995). This role is anchored on the use of monetary policy that is usually targeted towards the achievement of full-employment equilibrium, rapid economic growth, price stability, and external balance. Over the years, the major goals of monetary policy have often been the two later objectives. Thus, inflation targeting and exchange rate policy have dominated CBN’s monetary policy focus based on assumption that these are essential tools of achieving macroeconomic stability

1.2 STATEMENT OF RESEARCH PROBLEM

What really instigated the study was the difficulties in the course of implementing monetary policies in Nigeria, it is evident that some certain conflicting issues and challenges which were experienced has to do with compliance with the rules and regulations set by the CBN on Open Market Operation (OMO), Cash Reserve Ratio (CRR), interest rate, and Liquidity Ratio (LR) which are instruments of Monetary Policy manipulated to achieve growth, price stability, Balance Of Payment (BOP) equilibrium and full-employment.

1.3 AIMS AND OBJECTIVES OF STUDY

The main aim of the research work is to examine the monetary policy and exchange rate nexus with evidence from Nigeria. Other specific objectives of the research work include:

  1. To examine the relationship between monetary policy and exchange rate nexus in Nigeria
  2. To investigate on the factors affecting the monetary policy and exchange rate in Nigeria
  3. To determine the effect of exchange nexus on the economy of Nigeria
  4. To examine the relationship between monetary policy and the rate of inflation in Nigeria

1.4 RESEARCH QUESTIONS

The study came up with research questions so as to ascertain the above stated objectives. The specific research questions are stated below as follows:

  1. What is the relationship between monetary policy and exchange rate nexus in Nigeria?
  2. What are the factors affecting the monetary policy and exchange rate in Nigeria?
  3. What is the effect of exchange nexus on the economy of Nigeria?
  4. Is there any relationship between monetary policy and the rate of inflation in Nigeria?

1.5 RESEARCH HYPOTHESIS

H0: monetary policy and exchange rate nexus have no significant effect on the economy of Nigeria

H1: monetary policy and exchange rate nexus have significant effect on the economy of Nigeria

1.6 SIGNIFICANCE OF STUDY

The study on the monetary policy and exchange rate nexus will be of immense benefit the federal government of Nigeria, the Nigeria stock exchange and the central bank of Nigeria as the study will reveal the relationship between monetary policy and exchange rate nexus. The study will also investigate on the factors affecting the monetary policies in Nigeria. Finally the study will be of immense benefit to other research students that wishes to carry out similar research work on the above topic.

1.7 SCOPE OF STUDY

The study on the monetary policy and exchange rate nexus will be limited to Nigeria only. It will cover the monetary policy and exchange nexus for a period of 20 years (1996-2016).

  1. LIMITATION OF STUDY

Financial constraint- Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection from internet and statistical bulletin.

Time constraint- The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.

1.9 DEFINITION OF TERMS

MONETARY POLICY: is the process by which the monetary authority of a country, like the central bank or currency board, controls the supply of money, often targeting an inflation rate or interest rate to ensure price stability and general trust in the currency.

EXCHANGE RATE NEXUS: the is simply defined as the continuous change in the value of one currency for the purpose of conversion to another


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Project Information

Format:MS WORD
Chapter:1-5
Pages:60
Attribute:secondary data, Data Analysis
Price:₦3,000
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