LIQUIDITY POLICY AND ECONOMIC GROWTH IN NIGERIA, 1986-2020
This research work investigated the effect of liquidity policy as an arm of monetary policy on the economic growth in Nigeria, using Real GDP from 1986 to 2020 with data collected, and advanced econometric model was bused to analyze the data. Unit root test was carried out using ADF to determine the stationarity of the variables which were of mixed order, Johanssen co-integration test was employed to determine the long run and short run relationships using ARDL model estimator on the variables and they were found to be stable. The empirical investigation revealed that money supply rate, interest rate, and exchange rate in Nigeria have significant effect on Nigeria’s economy. Therefore, the study concluded that money supply, exchange rate, and interest rate as determinants for liquidity as arm of monetary policy had significance effect on economic growth in Nigeria within the period under study. Hence recommended Nigerian government through monetary authorities should improve on the liquidity management by lowering the lending rate so that local investors especially small and medium scale entrepreneurs can have easy access to loan facilities from banks. The Central Bank should identify practical and effective liquidity policy on money supply in the system and make better use of exchange rate to improve the aggregate economy. The Central Bank should assess the workability of liquidity policies regarding especially exchange rate and interest rate before possible implementation. The monetary authority should apply quite caution in formulating policies to re-evaluate the effectiveness, efficiency, and potency of liquidity policy tool in Nigeria with the view to accommodate any negative unforeseen circumstances like that of the COVID-19 pandemic.
