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MONETARY TARGETING STRATEGY AND MONETARY POLICY OBJECTIVES IN NIGERIAN ECONOMY, 1986- 2017
Abstract: The study aims at ascertaining if the monetary policy operating strategy is appropriate for achieving monetary policy objectives of price stability, sustainable economic growth, balance of payment equilibrium, and full employment in Nigeria between 1986 and 2017. The study adopted ex-post quasi -experimental design approach using quarterly time series data collected between 1986 and 2017. The monetarist framework of monetary policy using the Vector Autoregression (VAR) model analysis techniques was adopted in the study. The empirical model contains broad money supply (MS2) growth rate, monetary policy rate, and exchange rate as monetary policy variables, while price stability (PS), sustainable economic growth (GDP), balance of payment (BoP), and unemployment rate (UNEMP) are monetary policy target objective variables. Examination of the time series properties of the variables shows that all the variables were not stationary at level. However, they became stationary after 1st differencing. Cointegration analysis revealed that the variables are cointegrated. Estimate of the impulse response functions of the policy objectives to policy variable shocks shows that the policy objectives do not respond significantly to shocks from the policy variable. The forecast error variance decomposition reveals that variances of all the policy objectives due to shocks from the policy variable are not significant even after 10 quarters. It therefore implies that the monetary policy operating strategy is not appropriate for achieving the policy objective in Nigerian economy. The study concludes that there is need to change the operating strategy of monetary policy in order to make monetary policy effective in Nigerian economy
Keywords: monetary targeting, objective variables, operating strategy, policy variable.