Financial Liberalization and Nigerian Monetary Policy

Abstract

This study investigates the effect of financial liberalization on Nigerian monetary policy using a quarterly data on monetary policy rate, foreign direct investment, private sector financing and decentralized finance from 2000Q1 to 2020Q4. The study employs the Autoregressive Distributive Lag Model (ARDL) approach to bound testing for cointegration. The findings of the study reveals that the coefficient of long-run model shows that foreign direct investment (FDI) have significant positive effect on monetary policy rate on the other hand, Private sectors finance (PSF) and decentralized financing (DeFi) have a negative impact on monetary policy rate (MPR), in Nigeria. The short-run dynamics results also confirm that foreign direct investment rate have significant positive impact on monetary policy rate. In despite of the numerous economic and financial reforms undertaken since the year 2000 by Monetary Authority of Nigeria (CBN), the study recommends that proper economic reform and regulation of the financial institutions should be made in line with the dynamism and the monetary policy transformation.