Monetary Policy Transmission in Nigeria: A Sixty-Four-Year Analysis of Central Bank Policy Rate Effects on Lending Rates, Inflation, and Real Output (1960–2024)

This study provides the most comprehensive empirical analysis to date of monetary policy transmission in Nigeria, spanning the entire post-independence period from 1960 to 2024. Employing a multi-method approach integrating Three-Stage Least Squares (3SLS) system estimation, Time-Varying Parameter Vector Autoregression (TVP-VAR), and Nonlinear Autoregressive Distributed Lag (NARDL) models, we quantify the magnitude, speed, and symmetry of Central Bank of Nigeria (CBN) policy rate transmission to lending rates, inflation, and real output. Our findings establish systematically incomplete interest rate pass-through, with long-run coefficients ranging from 0.62 to 0.74 across lending rate measures, and pronounced asymmetry with faster adjustment to policy rate increases than decreases. We identify significant structural breaks in 1986 (Structural Adjustment Program), 2006 (Monetary Policy Rate introduction), and 2009 (banking crisis), with regime-dependent variation in policy effectiveness: the direct monetary control era (1971–1985) exhibited the strongest transmission (R² = 0.675), while inflation targeting lite (2000–2006) showed highest explanatory power (R² = 0.791) but insignificant individual coefficients. These results have critical implications for optimal monetary policy design in emerging markets, suggesting need for larger calibrated rate adjustments, complementary macroprudential instruments, and institutional reforms to deepen financial markets and enhance transmission effectiveness.