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The Efficacy of Monetary Policy Variables in Reducing Unemployment Rate in Nigeria

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  • Amassoma D
  • Francis Oluwatosin Esther

Abstract

The main purpose of embarking on this study is to ascertain the effectiveness of monetary policy in reducing unemployment rate in Nigeria using data spanning from 1970-2013. Despite the inconsistences in monetary policy instruments in Nigeria over the years there had not been much concrete evidence from theoretical and empirical literatures, regarding whether or not monetary policy is an effective tool that can be used to achieve key macroeconomic objective in the country vis-a-vis unemployment rate. The aforementioned as made this current study to be inevitable in terms of ascertaining whether monetary policy instrument in form of contractionary monetary policy exhibits the tendency to reduce unemployment rate in the country which is a topical issue around the globe. In order to achieve the above goals, the study utilized multiple regressions (OLS) approach and error correction modelling was used to examine the effect of some key monetary policy variables on unemployment in Nigeria. Evidence from the result shows that exchange rate and consumer¡¯s price index are the only monetary policy variables that influence unemployment rate while others do not. The results equally x-rayed that there is a unidirectional causality between monetary policy variable and unemployment rate which runs from exchange rate to unemployment. Owing from the above, the study therefore recommends that, the monetary authorities via central bank of Nigeria should ensure some reasonable monetary policy stands that would be suitable in reducing interest rate in the economy. Furthermore they should ensure relatively stable prices of goods and services which would guarantee sustainable investment that can enhance employment opportunities in the country.

Suggested Citation

  • Amassoma D & Francis Oluwatosin Esther, 2015. "The Efficacy of Monetary Policy Variables in Reducing Unemployment Rate in Nigeria," International Finance and Banking, Macrothink Institute, vol. 2(2), pages 52-71, December.
  • Handle: RePEc:mth:ifb888:v:2:y:2015:i:2:p:52-71
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    References listed on IDEAS

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    1. Geoff Tily, 2009. "John Maynard Keynes And The Development Of National Accounts In Britain, 1895-1941," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 55(2), pages 331-359, June.
    2. Marc Lavoie, 2006. "A Post-Keynesian Amendment To The New Consensus On Monetary Policy," Metroeconomica, Wiley Blackwell, vol. 57(2), pages 165-192, May.
    3. Feridun, M., & Folawewo, A. O. & Osinubi, T.S ., 2005. "Monetary Policy and Macroeconomic Instability in Nigeria: A Rational Expectation Approach," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 5(2).
    4. Jaeger, Albert & Parkinson, Martin, 1994. "Some evidence on hysteresis in unemployment rates," European Economic Review, Elsevier, vol. 38(2), pages 329-342, February.
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