EFFECTIVENESS OF MONETARY POLICY ON UNEMPLOYMENT IN NIGERIA

Abstract This study explores the relationship between monetary policy and unemployment in Nigeria, focusing on the effects of key monetary variables, including interest rates, money supply, inflation, GDP growth, government expenditure, and exchange rates. Using annual time series data from 1980 to 2023, the study employs the Autoregressive Distributed Lag (ARDL) model to examine both short-run and long-run dynamics. The findings indicate that money supply and inflation significantly reduce unemployment. Error correction term suggests that short-run disequilibrium is corrected annually, demonstrating a strong adjustment toward long-run equilibrium. Post-estimation diagnostic tests—including assessments of normality, heteroscedasticity, serial correlation, and stability (CUSUM and CUSUMSQ tests)—validate the robustness of the model. The study concludes that monetary policy is a critical determinant of employment levels in Nigeria. Financial inclusion enhancement to improve credit access for SMEs will revamp informal sector and strengthening of inflation-targeting policies to balance price stability and employment growth was recommended to tackle unemployment in Nigeria.