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MONETARY
POLICY MEASURE AS INSTRUMENTS OF ECONOMIC STABILIZATION IN NIGERIA
PROPOSAL
The Nigeria economy has been experiencing over the years the problems of
unemployment, price level instability, lack of sustainable economic growth,
balance of payment disequilibrium, inability to mobilize domestic saving and
unsatisfactory expansion of domestic output. This has lead to the
introduction of instruments of monetary policy to regulate the value, supply
and cost of money in an economy in consonance with the level of activity in
order to avoid excess or insufficient supply of money in the economy.
The researcher is aiming at finding how far monetary policy measures have gone
in stabilizing the economy of this nation, and those things that hinders its
success.
In view of this, descriptive research method will be used in
collection of data, that is collecting and analyzing information on monetary
policy measures from central bank of Nigeria annual report and statement of
accounts, and other secondary sources.
However, finance and time would be limitation to this research work, but the
researcher is hoping that at the end of this study, people will be educated on
the importance of monetary policy measures as instrument of economic
stabilization in Nigeria
ABSTRACT
In
general, monetary policy refers to the combination of measures designed to
regulates the value, supply and cost of money in an economy in cognizance with
the level of economic activity. An express supply of money which will result in
an excess demand for goods and services will cause rising prices and or a
deterioration of the balance of payments position. On the other hand,
inadequate supply of money could induce stagnation in the economy thereby referred
growth and development. Consequently, the central bank and the central
monetary authority, must attempt to keep the money supply growing at an
appropriate rate to ensure sustainable economic growth and to maintain internal
and external stability. The discretionary control of the money stock by
the central monetary authority involves the expansion or construction of money
influencing interest rates to make money cheaper or more expensive depending on
the prevailing economic conditions and the channeling of money to priority
sector. In a nutshell, the aims of monetary policy are basically to
control inflation, maintain a healthy balance of payments position for the
country in-order to safeguard the external value of the national currency
and promote an adequate and sustainable level of economic growth and
development.
This
study therefore, delves into monetary policy measure with a view to elucidating
their effectiveness as instruments of economic stabilization in Nigeria.
TABLE OF CONTENTS
CHAPTER ONE
1.0
Introduction
1.1 Background
of the study
1.2
Statement of the problem
1.3
Statements of objectives
1.4
Research hypothesis
1.5
Significance of the study
1.6
Scope and limitation of the study
1.7
Propositions
1.8
Definition of terms
CHAPTER TWO
2.0
Literature review
2.1 Definition
of monetary policy
2.2
Economic stabilization
2.3
Monetary policy objectives and economic stabilization
2.4
Analysis of key policy objectives/economic indications
2.5
Techniques and instruments of monetary policy
2.6
Debt management as integral part of monetary policy
2.7
Placement of government deposits
2.8
The transmission mechanism
CHAPTER THREE
3.0
Research methodology
3.1 Research
design
1.2
Sources of data
1.3
Data collection method
1.4
Treatment and analysis of data
1.5
Statement of null and alternatives hypothesis
CHAPTER FOUR
4.0
Presentation, interpretation and analysis of data
4.1 Analaysis
based on objectives
4.2
Hypothesis ptesting
4.3
Discussion
CHAPTER FIVE
5.0
Summary of findings, recommendations and collusion
5.1 Summary of
findings
5.2
Recommendations
5.3
Conclusion
Reference
Bibliography
CHAPTER ONE
1.0
INTRODUCTION
1.1 BACGROUND
OF THE STUDY
Generally monetary control measure include those devices that influence the
overall supply, cost and availability of money and credit. This is the
responsibility of the monetary authority which comprises the central bank and
the federal government in Nigeria, the central bank exercises primary
responsibilities for initiating, articulating, implementing and appraising such
policies. The banks proposal are subject to ratification by the federal
government.
Monetary policy measures are monetary management techniques put in place by the
government through the central bank to control money stock that is supply of
money in order to influence broad macro-economic objectives which include price
stability high level of employment, sustainable economic growth and a balance
of payment equilibrium. These broad objectives are achieved through the use of
appropriate instruments, depending on which objective the policy formulated
want to achieve and on the level of development of the economy.
In the application of monetary policy measures as instruments of stabilization
of the economy, here these instruments are determined by the nature of the
problems to be solved and by the environment in which these problems
exist. There are broadly two categories of hese instrument viz,
quantitative or indirect controls and selective (qualitative or direct)
controls. Indirect instruments are usually used in market based economic
where the quantity of money stock can be affected through the relationship between
money supply and reserve money as well as the ability of the monetary authority
to influence the creation of reserves. The reserves and hence,
money supply can be affected through the following ways:
i.
Change in reserves deposit ratio
ii.
Change in discount rate
iii.
Interest rate change and
iv.
Engaging in open market operation (OMO)
In an under-developed
financial environment, the instruments of monetary and credit targets at
desired levels. The major direct control measures is direct interest
regulation. Hence the regulatory authorities interpose explicit
limitations on dealings between borrowers and creditors.
These instruments of
monetary policy are applied in the achievement of various objectives However,
all such objectives are in consonance with the broad objectives of the 1st
National Rolling plan (1990-1992) which are:
The consolidation of
the achievement made so far in the implementation of the structural adjustment
programme (SAP). The plan is also to deal with pressing problems of
inflation, unemployment, the sluggish performance of the productive sectors
particularly manufacturing and the inadequate availability of foreign exchange
with the aim of achieving of non – oil export. Other socio economic
problems to be addressed by the plan include the high growth rate of
population, threats to the environment and the menace of anti-social behaviour
such as aimed robbery, and other junile delinquency. These objectives
viz, a highly level of employment, price stability, a sustainable level of
economic growth and balance of payment equilibrium.
However, the
effectiveness of monetary policy measures against which background of objective
were formulated has raised serious doubts as o the continuous use of these
policy measures. It is in the light of the above theoretical / background that
the author wishes to carry out a study of monetary policy measures as
instruments of economic stabilization.
1.2
STATEMENT OF THE PROBLEM
Over the years, so many instruments of monetary policy have been in vague not
to gear-up the level of investment, but unemployment, price level
instability, lack of sustainable economic growth, balance of payment
disquilibrium, inability to mobilize domestic savings and unsatisfactory
expansion of domestic output. These have consistently and persistently
done severe damage to the Nigerian economy unabated.
It is against this background that the problems of this study have been
identified and they are as follows:
a.
Are monetary policy measures effective as instruments of economic
stabilization?
b.
Have there monetary policy to achieve desired objectives and what has been the
outsome?
c.
Is the implementation of monetary policy ideal?
d.
What factors hinder the full attainment of the monetary policy objectives?
e.
Could there be any remedy to these problems
f.
Are there conflicts or relationship between monetary and fiscl policy measures?
1.3
STATEMENT OF OBJECTIVES
The objectives of this paper are:
i.
To present and analyse the various moneatary objectives and isntruments for the
period.
ii.
To demonstrate the general trned in monetary policy as a tool for achieving
economic stabilization in Nigeria
iii.
To ascertain the level of success of policy measures agisnat desired
objectives.
iv.
To identify the factors that tend to hinder the full attainment of the derived
objectives
v.
Finally to recommend the appropriate policy measures for the achievement of
specific objectives as well as recommend solutions to problems that hinder the full
attainment of such objectives.
1.4
RESEARCH HYPOTHESIS
Hypothesis are research solutions o problems, which are in essence queses or
unches that are subjected to some verification or test. By the above
ascertain the researcher therefore deemed it necessary to establish the
following hypothesis, that:
1.
An increase in money supply earns increase in the level of inflation
2.
A reduction in money supply will lead to a current account surplus in the
balance of payments.
3.
An increase in net domestic credit will lead to an increase in GP growth rate.
1.5
SIGNIFICANCE OF THE STUDY
This research provides an insight into monetary policy measures as instruments
of economic stabilization. It will therefore be of invaluable use to the
following people.
To students, it will provide a complement to the few existing tests on money
policy and economic stabilization.
To policy makers, this study will be of immense value because it:
i.
Highlights the mechanism for the operation of monetary policy against achieving
set goals and objectives.
ii.
Examines the areas of conflict between monetary and fiscal policies.
iii.
Analyses the problems facing the full implementation of monetary policy
measures and
iv.
Suggestive solutions to such identified problems, as such policy makers will
find its recommendations invaluable in formulating new and ideal measures for
the achievement of economic stability.
Bankers will also find this work a useful tool in analyzing the effects of
government actions on their activities and whether these actions are, on the
whole favourable in investors are not left out, this work will serve as a guide
on the effects of monetary policy on various sector of the economy, in which
their funds can be invested and lastly, the ordinary reader will find this work
as an eye opener and a valuable store of knowledge.
1.8
DEFINITION OF TERMS
Monetary policy: instruments of
stabilization and economic
development. They are measures, or a combination
of measures designed to influence or regulate the
volume, price and direction of money and credit.
Money
stock: The amount of money in circulation
at any point in
time. This is variable and could be affected.
Reserve money: This
is also known as reserve. It is the amount of
fund a bank is required to maintain in its vaults
Reserve Radio:
This is the ratio of the deposit that the banks are
required to maintain with the central bank.
Discount
rate; This is the rate at which the central
bank makes loans
to the commercial bank as a lender of final or last
resort.
Lender of last resort: This term is
used to qualify the central bank.
When banks are cash strapped, it is the central banks
that lends to them when there is no other alternatives.
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