ABSTRACT
The highly unsuitable economic conditions in Nigeria has been a major source of concern among economic and policy makers in recent time. These economic problems can be attributed to the existence of market failure and the inability of the price mechanism to efficiently allocate scarce among economic agents.
This research sets out to examine the extent to which government intervention through monetary policy has been able to regulate the economy by ensuring general price stability and growth.
From the research work, we discover that monetary policy, through the use of the instrument of money supply but have not able to stabilize economic growth which as not been able to regulate the general price level.
This work also viewed the different schools of thought and their option about the use, effects and setbacks of monetary policy in stabilization of an economy, the Classical and the Cambridge model view money as a store of value and they believe that increase in money will cause same increase in prize, while the Keynesian argued that money is demanded for 3 purposes and concluded with their liquidity theory and lastly the monetarist they believed that demand is a stable function variable and money supply.
This work also focused on the means or mechanism through which this policy is been effected in the economy, the apex bank been the avenue through which the government extend this policy, the apex bank also through some means which include a direct and indirect mechanism extend this policy to the commercial banks and then to the general public.
This research work consist of a dependant variable in its hypothesis and some independent variable to explain the importance of monetary policy and its effect on the prize and Gross Domestic Product (GDP) in the economy, a least square regression method was adopted to derive the significant of the independent variable on the dependent variable. A data covering the duration of 32 years was introduced in the model; the result was established, interpreted and concluded was drawn with recommendation.
CHAPTER ONE
INTRODUCTION
1.0 BACKGROUND STUDY
Economies all over the world experience one form of fluctuations or the other at different times. These fluctuations are usually beyond the ability of the market working through the price to cushion them. Hence, market failure.
A key of all central banks including the Central Bank of Nigeria is to promote and maintain monetary stability and a sound financial system. The assumption is that this will help encourage long term planning, aid infrastructural development, attract foreign investments and engender economic growth. While the central bank is totally responsible for the promulgation of sound monetary policies in order to aid the attainment of the above objectives, the formulation of fiscals' policies, which also affects the achievement of the above objectives, however falls on the wider government, particularly the Ministry of Finance. Given the both monetary and fiscal policies impact on economic growth and development, it is not surprising that they are entwined. This relationship has been explicitly explained thus:
Monetary policies are inextricably linked in macroeconomic management; developments in one sector directly affect developments in the other. Undoubtedly, monetary policy is usually concerned with the use of hanges in money supply and/or interest rates to influence the level of economic activity. It is anchored on the use of all or some of the following policies: Open Market Operations, Liquidity Rations, Rediscount Policy, Minimum Reserve Requirement and Sectoral Credit Guidelines.
On the other hand, fiscal policies involves the use of taxes and changes in government expenditure to influence the level of economic activity (Ekpo, 2003, p.15) affects the disposable income of citizens and corporations, as well as the general business climate. In this regard, the interrelationship between public spending and private sector performance is of paramount importance. On one hand, Government expenditure can provide an impulse for private sector growth, while on the other, it can be harmful if it results in budget deficits and leads to competition for scarce financial resources from the banking sector as the government seeks to finance the deficit. In such circumstances, the crowding out of the private sector by the Government sector can outweigh any short-term benefits of an expansionary fiscal policy.
The key to all these therefore lies in striking a good balance in fiscal management. Having enough expenditure outlays to meet the needs of Government and support growth, but not so much as to deny the private sector the resources it needs to invest and develop.
This has the potentials of destabilizing the macro-economic environment thereby retarding economic productivity and development. The objective of this paper is to review the practice of monetary in Nigeria since independence. In doing so, we hope to explore the following issues: the link between government and development; how monetary policy have affected past developmental programmes in the country, and; the difficulties of conducting monetary in a deregulated environment and in an era of globalization.
According to the classical economists, it is the "invisible hand" of price mechanism that regulates the economy and determines what, how and whom to produce goods and services. It is a well-known fact that the "invisible hand" of price mechanism as propounded by Adam Smith has not been able: to effectively stabilize the economy in the practical sense. This could be attributed to the emergence of market imperfections: where market fails to efficiently allocate and distribute scarce economic resources.
Given this, the Government in order to attain a second-best situation, usually adopts measures such as fiscal policy and income policy to reduce the effect of these fluctuations. In this study, our interest is in monetary policy measures and their effectiveness in an import-dependent economy.
.