ANALYSIS OF THE IMPACT OF MONETARY POLICY ON AGRICULTURAL, MANUFACTURING AND SERVICES SECTORS OUTPUT IN NIGERIA (1986-2012)

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ANALYSIS OF THE IMPACT OF MONETARY POLICY ON AGRICULTURAL, MANUFACTURING AND SERVICES SECTORS OUTPUT IN NIGERIA (1986-2012)

Abstract:

There have been efforts by the Central Bank of Nigeria to influence output using monetary policy. In 1987, the MRR was reduced from15% to 12.75%, subsequently the lending rate increased, credit to private sector also increased. The contribution of manufacturing sector to GDP declined, while those of agriculture and services increased. Again in 2006, the MPR was set at 10% from MRR of 14%, subsequently the lending rate decreased, credit to private sector increased. The contribution of manufacturing sector to GDP further declined, while those of agriculture and services increased further. This study therefore examines the impact of monetary policy on selected sectoral output in Nigeria 1986-2012. The selected sectors are; agriculture, manufacturing and services because of their role in provision of food, employment, reduction in poverty and attainment of higher standard of living for the populace. The study employs the Cointegration test and VAR methodology. Cointegration test reveals that there is long run relationship between monetary policy variables, agricultural sector and manufacturing sector output and no long run relationship between monetary policy variables and services sector output. The result from impulse response function shows that monetary policy rate does not impact all the three sectoral outputs. This finding is not in conformity with apriori expectation. The lending rate was found to impact all the three sectors. Also the variance decomposition shows that inflation was the most important variable that explains variation in the agricultural sector output, followed by M1 and lending rate. In the manufacturing sector, M2 was the most important variable that explains variation in its output, followed by lending rate and M1. The most important variable that explains variation in services sector output was M1, followed by M2, credit to private sector and lending rate. The CBN should encourage Commercial banks and other credit institutions to improve upon their loan procedures so that farmers, manufacturers and services providers can have access to their credit facilities. Efforts should also be made to ensure that the credit is used for productive purposes.

ANALYSIS OF THE IMPACT OF MONETARY POLICY ON AGRICULTURAL, MANUFACTURING AND SERVICES SECTORS OUTPUT IN NIGERIA (1986-2012)

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