Monetary Policy and Balance of Payment In Nigeria (1981-2012)
One of the stabilization policies with which the government of Nigeria manages the economy is that of Monetary Policy. Monetary Policy formulation in Nigeria is usually targeted at achieving some macro-economic objectives amongst which is equilibrium in the country’s Balance of Payments (BOP) . This work investigated empirically the impact of monetary policy on Nigerian balance of payment. The research was conducted using Ordinary Least Squares (OLS) technique of multiple regression models using statistical time series data from 1980-2010. Secondary data on Balance of Payments (BOP) used as the dependent variable; broad money supply (M2), Interest rate (INT), exchange rate (EXCR) and gross domestic product (GDP) which represented the explanatory variables, and sourced mainly from CBN publications were first tested for the presence of unit root using the Augmented Dicey Fuller test while Johansen co integration test was used to test for long run relationship between the dependent and independent variables. The ADF results indicated that all the variables were stationary after first difference at 5 and 1 percent level of significance and the Johansen co integration test revealed the presence of a long run relationship among the variables. Ordinary least square (OLS) technique was employed to estimate the individual parameters and the result indicated that the coefficients of M2 and EXCR were positive while those of INT and GDP were negative. However, all the parameter coefficients except interest rate were statistically significant. The study therefore concluded that monetary policy instruments affect significantly balance of payment and recommended inter alia that Central Bank of Nigeria (CBN) should intensify the process of regular monitoring of the operation of deposit money banks to ensure compliance with prudent guidelines and promote transparency in the banking operations.