Does Monetary Policy Have a Direct Impact on the Real Sector? Evidence from Nigeria’s Manufacturing and Solid Mineral Sectors.
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Abstract
This paper investigates the influence of Nigerian monetary policy on both the manufacturing and solid minerals sectors. The study employed Autoregressive Distributed Lag Model (ARDL) to estimate the relationship. The uniqueness of this study lies in the use of extensive monetary policy variables (money supply, exchange rate, credit advanced to each studied sector, interest rate, and inflation rate) to provide comprehensive evidence of their impacts on the sectors under investigation and the inclusion of the investigation on solid minerals sector. It is established in this paper that the monetary policy variables jointly influence the output from both the manufacturing and solid minerals sectors within the study period. Consequently, expansionary policy with respect to money supply and credit advanced to the manufacturing sector is found to be jointly significant. While interest rate expectedly has inverse influence on manufacturing output, the exchange rate unexpectedly has positive influence on the sector. For the solid minerals sector, both the interest and exchange rates have inverse effects on the sector, in line with a priori expectation. The study's conclusion implies that policymakers should prioritize ensuring accessible credit to the manufacturing and solid minerals sectors. It emphasizes the adverse impact of interest rate hikes on sectoral growth, urging cautious management of interest rates. Stabilizing the foreign exchange market is deemed essential for creating a conducive environment for growth. Policymakers are encouraged to implement measures that facilitate credit accessibility to investors in these sectors, supporting investment and expansion initiatives.
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