International Journal of Management, IT and Engineering

This study examined the effects of monetary policy instruments on the industrial growth in Nigeria between 1993 and 2017 using Vector Error Correction Model (VECM). Specifically, it examined the impact of monetary policy instruments on the manufacturing growth which is one of the components of industrial sector. Secondary data were sourced from the Central Bank of Nigeria (CBN) Statistical Bulletins. Manufacturing Gross Domestic Product (MFGGDP) as proxy for the industrial growth was regressed on Monetary Policy Rate (MPR), Open Market Operation (OMO) and Liquidity Ratio (LR). VECM was used to gauge impulse responses of the exogenous variables on the dependent variable. Philip Perron (PP) tests was used for a robust test of stationarity, Breusch Pagan Test and Godfrey serial correlation were used to test for the normality and serial correlation of the series and Auto regressive distributed lag bound test was used to investigate long run relationship among the variables. The results of the stationarity test revealed that MPR, OMO and LRR are co-integrated of difference order. Breusch pagan test and Godfrey serial correlation revealed that there exists normal distribution of the residuals and that series were free from auto correlation. The ARDL bound test revealed that there is existence of long run relationship among the variables. The VECM coefficients revealed that, MPR of 0.0032 LRR of 0.0016 have positive effect on manufacturing sub sector growth while OMO of-0.0091 has negative effect on manufacturing sub sector growth during the years of review while the error correction mechanism revealed that there is insignificant short run relationship among the variables. From the impulse response and variance decomposition tests, it was revealed that manufacturing sub-sector responded to all monetary policy components (MPR, OMO, LR) especially the monetary policy rate. The study as stated above concluded that monetary policy has insignificant effect on industrial growth in Nigeria. It is recommended that monetary authorities (CBN, FGN, and Minister of Finance) should efficiently implement monetary policy favour manufacturing sub sector especially by lowering the interest rate at which they borrow and favourable exchange rate, so as to stimulate further growth in the sector.