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The Empirical Analysis of Monetary Policy on Balance of Payments Adjustments in Nigeria: A Bound Testing Approach

Author

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  • Bukonla G. Osisanwo

    (Department of Economics, Olabisi Onabanjo University, Ago-Iwoye, Nigeria.)

  • Sheriffdeen A. Tella

    (Department of Economics, Olabisi Onabanjo University, Ago-Iwoye, Nigeria.)

  • Bolade Abolaji Adesoye

    (Department of Economics, Olabisi Onabanjo University, Ago-Iwoye, Nigeria.)

Abstract

This study investigates the impact of monetary policy on balance of payments (BOP) adjustment in Nigeria within the periods, 19802015. The study used the bound testing approach to show the relationship that exists among monetary policy variables (money supply, domestic credit, inflation and exchange rate), output growth, and trade balance and BOP adjustment in Nigeria. The study shows that there is a long-run relationship between monetary policy variables and balance of payment adjustment. The findings further revealed that in the long-run, money supply and trade balance have positive impact on balance of payments adjustment in Nigeria. On the other hand, domestic credit, exchange rate, inflation rate and gross domestic product suggest a negative impact on balance of payments in Nigeria. An important observation from the empirical estimate is that money supply has more of a long-term impact on BOP adjustment than other monetary policy variables. This study suggests that in stabilizing the BOP position of the country, the apex bank should try as much as possible to balance money supply and demand for money so as to avoid distortion in price.

Suggested Citation

  • Bukonla G. Osisanwo & Sheriffdeen A. Tella & Bolade Abolaji Adesoye, 2019. "The Empirical Analysis of Monetary Policy on Balance of Payments Adjustments in Nigeria: A Bound Testing Approach," Iranian Economic Review (IER), Faculty of Economics,University of Tehran.Tehran,Iran, vol. 23(1), pages 129-147, Winter.
    • Handle: RePEc:eut:journl:v:23:y:2019:i:1:p:129
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    Cited by:

    1. Akpansung, Aniekan O., 2021. "Impact of Real Effective Exchange Rates on Balance of Payments: Empirical Evidence from Nigeria," African Journal of Economic Review, African Journal of Economic Review, vol. 9(4), September.
    2. Atoi Ngozi Victor, 2020. "Macroeconometric Assessment of Monetary Approach to Balance of Payments in a Small Open Economy: The Nigeria Experience," International Journal of Economics and Financial Research, Academic Research Publishing Group, vol. 6(3), pages 41-50, 03-2020.
    3. Cham, Yaya, 2023. "Monetary Approach to Balance of Payments: Empirical Evidence from ECOWAS Countries," MPRA Paper 118374, University Library of Munich, Germany.

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