MONETARY TRANSMISSION MECHANISM IN NIGERIA: A VERITABLE TOOL FOR ECONOMIC RECOVERY

The effectiveness of monetary policy in changing aggregate economic activity and economic development largely depends on how monetary policy is conducted and the independency of the central bank to choose the appropriate monetary tools or mechanism to transmit the policy. Also, the attainment of the macroeconomic objectives has to do with the transmission mechanism that can effectively affect key macroeconomic variables, thereby stabilizing the economy as well as impacting on economic development. This study examined the relationship between the monetary policy transmission channels and economic development, using annual data of monetary transmission variables like; interest rate, exchange rate (EXR), private sector credit (PSC) extended by the banking system, money supply (M2) and equity prices (PE). PE was captured by the average price-earnings ratio which also captures the Tobin’s q channel of monetary transmission mechanism. The estimation technique was ordinary least square (OLS) method. The study found that exchange rate and money supply negatively impacts on the economic growth in Nigeria, while interest rate, credits to private sector and inflation rate have direct effects on economic growth in Nigeria. Therefore, there is need for exchange rate management and control of money supply in the country for a rapid economic growth in Nigeria.