The impact of monetary policy on nigerias economic development essay

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 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.

The impact of monetary policy on nigerias economic development essay

In determining the factors influencing money demandFriedman casts it in function is as follows. The controversies in monetary theory and policy have centered on what has come to be called the transmission mechanismthe channel by which money supply influences economic activity. It may also be the case that the time lags inherent in the various channels of transmission differ.

An important point worth stressing from the policy point of view, is the empirical fact that a close relationship is found to exist between money supply and nominal income in all countries.

It follows perhaps logically from this, that if production cannot adjust in the short run, due to whatever bottlenecks, monetary action is likely to cause changes in prices Dornbusch and Fischer As noted earlier, monetary policy refers to the combination of measures designed to regulate the value, supply a cost of money in an economy in consonance with the expected level of economic activity.

One of the principal functions of the Central Bank of Nigeria CBN is to formulate and execute monetary policy to promote monetary stability and a sound financial system. The CBN carried out this responsibility on behalf of the federal government through a process outlined in the Central Bank of Nigeria decree 24, and the banks and other financial institution decree 25, as amended.

In formulating and executing monetary policy, the governor of the CBN is required to make proposal to the president of the Federal Republic of Nigeria who has the power to accept or amend such proposals.

The CBN is also empowered by the two enabling laws, to direct the banks and other financial institutions to carry out certain duties in pursuit of the approved monetary policy.

Usually, the monetary policy to be pursued is detailed out in the form of guidelines are generally operated within a fiscal year but the elements could be amended in the course of those particular years. Penalties are normally prescribed for non- compliance with specific provisions in the guidelines.

The aims of monetary policy are basically to control inflation maintain a health balance of payments position in order to safeguard the external value of the national currency and promote adequate and sustainable level of economic growth and development.

Monetary policy is art of the overall economic policy that regulates the level of money supply and credit in the economy in order to achieve some desired policy objective. By monetary policy objectives, we mean the ultimate objectives of macroeconomic policy.

The maintenance of price stability; maintenance of balance of payment equilibrium; attainment of high rate of employment; accelerating the pace of economic growth and development; exchange rate stability and the maintenance of Price Stability. In the modern economy, the price level tends to be sticky if not rigid in the downward direction, so that the problem of price level stability has essentially been that of avoiding inflation.

Inflation erodes the purchasing power of economic agents and introduces uncertainty and other vices. Price stability is therefore, necessary not only to remove these vices but also to restore confidence and maintain international competitiveness. The Maintenance of Balance of Payments Equilibrium: For instance, monetary policy affects the interest rate and high interest rates attract capital inflows and hence influence the balance of payments.

Which this level of development and growth are attained depends upon the resource available to the country. The Central Bank in its monetary measures, aims at maintaining adequate level of foreign exchange rate consistent with the allocative efficiency.

This is an indirect or traditional approach of monetary control. They include the manipulation of: Attainment of High Rate of Employment In the real world situations, the level of employment that implies full employment is not obvious.

But it is not possible that all those seeking employment will be employment at one time. Even in the period of boom in a dynamic economy, some people will always be between jobs or seeking new employment.

Thus, the monetary policy measures aim at attaining a high rate of employment that should proxy full employment. In other words, it aims at maintaining a low and stable level of unemployment, Anyanwu Development may be measured by the level of income per heard, capital per head, savings per head, the percentage of unexploited resources amount of public goods, the extent to which the working class obtained education.

While economic growth may be said to concern itself with the effect of investment on raising potential income and hence causes changes in the living standard of the people.

The impact of monetary policy on nigerias economic development essay

The extent to which this level of development and growth are attained depends upon the resource available to the country. Open Market Operations Open market operation refer to the buying and selling of government and other approved securities by the Central Bank in the open market.

Increase in the bank deposit implies an increase in the money supply. Thus, if the Central Bank wants to reduce the volume of money in circulation because the economy is irking by inflation, it sells securities to be public for which the public pays by writing cheque favoring their deposit accounts.

In other words, it is the rate of interest the Central Bank charges the commercial banks on founds lent to them against collateral.

The manipulation of the discount rate helps to control the volume of money in circulation. For instance, if the economy experiences inflationary pressure, the Central Bank raise the discount rate thereby making it very costly for the commercial banks to obtain founds from her.

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Consequently, commercial banks, in turn increase their lending rate. This will, in effect, cause investment to shrink, and employment, income and the general price level will all fall. Portfolio Control Approach Portfolio Control Approach is a direct or non- traditional approach of monetary control.have the desired impact on rapid and stable economic growth and development, and can also stifle economic growth and development (Johnbull, , and Nzotta, ).

But in Nigeria, very little has been done to examine their effectiveness and their applicability (Anamakiri, ). We will write a custom essay sample on THE IMPACT OF MONETARY POLICY ON NIGERIA’S ECONOMIC DEVELOPMENT specifically for you for only $ $ /page Order now.

Monetary Policy And Its Impact On The Economy Words | 5 Pages. Monetary policy is the set of means implemented by a central bank to influence the economy by regulating its currency.

Therefore, in every country, central banks play a key role in the economy of . The Impact of Monetary Policy on Economic Development: Evi dence from Lao PDR The study has used Johansen’s cointegration long run association among all variable s.

A REASSESSMENT OF THE IMPACT OF MONETARY POLICY ON ECONOMIC It is in against the following backdrop that the objectives of this study is to reassess the impact of monetary policy on economic growth in Nigeria by determining the relationship existing Monetary policy is certainly one of key drivers of economic growth and development.

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