Monetary policy and gross domestic product growth rate in Nigeria

This study investigates the effect of monetary policy on gross domestic product growth rate (GDPGR) in Nigeria from 1986 to 2024 using the Johansen cointegration test and the Autoregressive Distributed Lag (ARDL). The Johansen cointegration test showed that the short-run result is applicable among the monetary policy variables and GDPGR. The ARDL short-run findings indicated mixed results: monetary policy rate, exchange rate, inflation rate, and money supply had an insignificant effect on the GDP growth rate, while the Cash reserve ratio had a significant effect on the Gross Domestic Product Growth Rate. The monetary policy rate (MPR) (β=0.1163,ρ=0.5490) and exchange rate (β=2.3315,ρ=0.1882) have positive and insignificant effects on the GDP growth rate. In contrast, the inflation rate (β=-0.06772,ρ=0.0959), and money supply (-0.6743, p = 0.7389) exhibit negative but statistically insignificant effects. However, cash reserve ratio (β=-0.2690,ρ=0.0420) exhibit negative but statistically significant effects on GDP growth rate. Despite the insignificant result of most variables, the joint effect of monetary policy indicators exerts a statistically significant effect on GDPGR (F-statistic 2.5494, p = 0.0400), specifically driven by the cash reserve ratio. Therefore, policymakers should review the application of the cash reserve ratio on financial institutions due to the negative effect on the productive sectors and real output growth.