Effect Of Nigeria Expansionary Monetary Policy On Investment Growth
This study makes a modest contribution to the debates by empirically analyzing the relationship between Nigeria expansionary monetary policy (money supply) and investment growth (gross fixed capital formation), using time series data from 1970 to 2012, obtained from the Central Bank of Nigeria statistical bulletin and the West African Institute for Financial and Economic Management data base. It employs the Engle-Granger two step modeling (EGM) procedure to co-integration based on unrestricted Error Correction Model and Pair wise Granger Causality tests. From the analysis, my findings indicate that money supply and gross fixed capital formation are cointegrated in this study. The error correction term of -0.76 is negatively signed and also significant at all conventional level indicating that when the variables wonder away from equilibrium following an exogenous shock, 76 percent of the disequilibrium is corrected after one year. Based on the result of granger causality, the paper concludes that causality exist between the two variables used in this study. Therefore, the policy implication of these findings is that any reduction in money supply (contraption) would have a negative repercussion on investment growth in Nigeria.
Keywords- Money Supply, Gross Fixed Capital Formation, ECM, Causal Relationship, Growth