MONETARY POLICY AND BALANCE OF PAYMENTS IN NIGERIA: A CO-INTEGRATION APPROACH (1986-2012)

Abstract

This study examines monetary policy and balance of payments in Nigeria ranging from 1986-2012. A cointegration approach to econometric analysis was employed in investigating the effects of monetary policy variables on Nigeria’s balance of payments. The results of the cointegration estimation show a positive relationship between the dependent variable (Balance of Payments) and the Independent variables (Money Supply, Exchange Rate, Interest Rate and GDP). Specifically, Money Supply and Interest Rate had significant relationship with Balance of Payments, whereas Exchange Rate was not statistically significant. Based on the results, it was therefore recommended that the government should promote the exportation of Nigerian products especially the Non-oil products, as this will bring in more foreign exchange into the country, boost productive activities and improve the balance of payments position of the country. Also, the Central Bank of Nigeria should ensure that the monetary policies adopted in the country are complemented with effective fiscal policies to foster economic growth and development in the Nigerian economy.