Impact of Monetary Policy on Economic Growth in Nigeria : The Vector Error Correction Model (VECM) Approach

This study examined the impact of monetary policy on economic growth in Nigeria. The secondary data used include the Money supply, economic growth, Credit to the private sector, Interest rate and Exchange rate. The Vector Error Correction model (VECM) was adopted as the estimation technique of the study. Findings show that there is no bidirectional granger causality among any of the variables. Also, one standard deviation shock to M2 initially has positive perceptible effect on Gross Domestic Product (GDP) in the short and also for a long period it still has positive perceptible effect on GDP and causes output to decrease. One standard deviation shock to Bank Credit to the private sector (BCP) has a huge and negative effect on GDP in the short run and a one standard deviation shock to Interest rate (INT) and Exchange rate (EXC) has positive but low effect on GDP. Therefore, the study recommended that monetary authority- The Central Bank Nigeria (CBN) should manage the money supply properly and work towards eliminating the rigidities associated with credit to the private sector. Monetary policies should be used to create a favorable investment climate by facilitating the emergency of market-based interest rate and exchange rate regimes that attract investments to the Nigerian economy