The Effectiveness of Monetary Policy Instruments in Creating Real Sector Output Growth in Nigeria

Monetary policy, a crucial instrument for economic stabilisation, comprises measures to control and manage the quantity, accessibility, cost, and movement of credit and money in an economy in order to accomplish certain macroeconomic policy goals. The purpose of this study was to examine the effectiveness of different monetary policy instruments (money supply, interest rates, exchange rate) on real sector output growth in Nigeria during the period under consideration. To this end, the study used annual time series data from the CBN statistical bulletin and the World Development Indicator (WDI) between 1981 and 2023 for its analysis. The paper also uses various econometric techniques: the Autoregression Distribution Lag (ARDL), Unit Root Test, Bound Co-integration Test, and Augmented Dickey Fuller (ADF) Test techniques to obtain its results. According to the Unit Root Test results, some of the model's variables are stationary at level and others at first difference. The co-integration test demonstrates the existence of a long-term correlation between real sector output growth and monetary policy variables. While the money supply, exchange rate, and inflation are found to be effective instruments in the long-run having positive effects on real sector output growth, interest rate is found to be effective in the short-run. Given their long run beneficial effects on the economy, it is advised that the government focus more on controlling money supply, inflation and the exchange rate while interest rate should be considered as a short term measure.