Monetary Policy Rate And Entrepreneurship Development In Nigeria: An Application Of Granger Causality Test And Innovative Accounting Approach

This study investigates the causal linkages and dynamic future responses between monetary policy and entrepreneurship development in Nigeria using annual time series dataset spanning from 1984 to 2019. The variables in the model are entrepreneurship development measured as domestic credits to private sector, monetary policy rate, inflation rate, gross domestic products (GDP) and imports of goods and services. The paper applied Granger causality test and impulse response function in modelling the linkages. The result indicated that there is evidence of bidirectional causality between monetary policy and entrepreneurship development, while there are no causal linkages among entrepreneurship development, inflation rate, economic growth and imports of goods and services. On the innovation accounting shocks (impulse response function), the result showed that a unit shock in monetary policy rate and inflation rate is associated with negative shock to entrepreneurship development by 0.069% in the short run and 0.038% in the long run, and 0.153% in short run and 0.111% in the long run, respectively. The result further showed that a unit innovation change in economic growth and imports of goods and services may lead to positive shock on entrepreneurship development by 0.047% in the short run and 0.125% in long run, and 0.006% in short run and 0.033% in long run, respectively. Based on the results, this study recommends for Central Bank to intensify its efforts towards ensuring and sustaining stability in monetary policy rate and inflation rate so as to accelerate the rate of entrepreneurship development in the country.