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Monetary Policy and Bank Credit in Nigeria: A Toda-Yamamoto Approach

Author

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  • Afolabi Mutiu Adeniyi

    (Federal Polytechnic Offa)

  • Adeyemi Kamar Kayode

    (Federal Polytechnic Offa)

  • Salawudeen Opeyemi Sakirat

    (Federal Polytechnic Offa)

  • Fagbemi Temitope Olamide

    (Unilorin Nigeria)

Abstract

The importance of money in economic life has made policy makers and other relevant stakeholders to accord special recognition to the conduct of monetary policy. This study investigated the relationship that exists between monetary policy instruments and Deposit Money Banks Loans and Advances in Nigeria. An annual time series data covering a period of 36years from 1981-2016 were sourced from Central Bank of Nigeria and used for the study. The relationship between monetary policy and credit creation of Deposit Money Banks was captured by monetary policy variables and structural changes in monetary policy. The study employed Toda and Yamamoto granger non-causality model to examine the relationship existing between Deposit Money Banks loan and advances and monetary policy variables in Nigeria. The findings revealed that structural changes in monetary policy system exerted positive significant impact on loan and advances of Deposit Money Banks in Nigeria. Findings also revealed bidirectional relationship existing between MPR and loan and advances of Deposit Money Banks in Nigeria. Precisely, MPR proved to be a significant variable which causes Deposit Money Bank loans and advances in Nigeria. The other explanatory variables; broad money supply (LM2),liquidity ratio (LR), inflation rate (IFR) and cash reserve ratio (CRR) does not granger cause loan and advances of Deposit Money Banks in Nigeria within the study period. The study concluded that the structural change in monetary policy system and monetary policy rate have significant impact on loan and advances of deposit money banks in Nigeria .Hence, the study recommended that monetary authority should formulate policies that will stabilize interest rate so as to boost the investors’ confidence.

Suggested Citation

  • Afolabi Mutiu Adeniyi & Adeyemi Kamar Kayode & Salawudeen Opeyemi Sakirat & Fagbemi Temitope Olamide, 2018. "Monetary Policy and Bank Credit in Nigeria: A Toda-Yamamoto Approach," Acta Universitatis Danubius. OEconomica, Danubius University of Galati, issue 14(5), pages 717-735, OCTOBER.
    • Handle: RePEc:dug:actaec:y:2018:i:5:p:717-735
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    References listed on IDEAS

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    2. Scott T. Fullwiler, 2013. "An endogenous money perspective on the post-crisis monetary policy debate," Review of Keynesian Economics, Edward Elgar Publishing, vol. 1(2), pages 171-194, January.
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