Impact of Monetary Policy on Stock Market Development: Implications for the Nigerian Economy

ECRTD - Journal of Development and Economic Sustainability, 6 (4), 29-50.

22 Pages Posted: 7 Jan 2019

See all articles by Ebele Nwokoye

Ebele Nwokoye

Nnamdi Azikiwe University - Department of Economics

Otu Emmanuel

Federal University Otuoke

Date Written: September 01, 2018

Abstract

The unsustainable and decreasing contribution of the Nigeria stock market to economic growth and development is the rationale for this study. Previous studies were unable to fully address the core developmental problems of the stock market in terms of its contribution to economic growth. These studies focused on how the monetary authorities can stabilize the stock market and reduce its volatility but ignored issues bordering on the contribution of the stock market to economic growth, which of course is the essence of any stock market and as such characterize its development. Consequently, the objective of this study is to investigate the impact of monetary policy on the development of the stock market in Nigeria. The study period covered from 1981 to 2015. Cointegration and vector error correction modelling (VECM) were employed for the analysis. The cointegration test indicates that there exist long run equilibrium relationship among the variables of the model. VECM result indicated that monetary policy, through the growth rate of money supply has impacted positively and significantly on the development of the stock market in Nigeria. Also, findings further indicated that prime lending rate has had a negative impact on the development of the stock market in Nigeria. The study recommended among others, that the Central Bank of Nigeria (CBN) should use its growth rate of money supply to further boost the development of the stock market but must however be mindful of the channeling of the increase in money supply in order to curtail the possible negative impact of inflation.

Keywords: deposit money banks, economic growth, monetary policy, stock market development

Suggested Citation

Nwokoye (nee Nwabude), Ebele and Emmanuel, Otu, Impact of Monetary Policy on Stock Market Development: Implications for the Nigerian Economy (September 01, 2018). ECRTD - Journal of Development and Economic Sustainability, 6 (4), 29-50.. Available at SSRN: https://ssrn.com/abstract=3024160

Ebele Nwokoye (nee Nwabude) (Contact Author)

Nnamdi Azikiwe University - Department of Economics ( email )

Enugu-Onitsha Expressway
Nnamdi Azikiwe University
Awka, Anambra
Nigeria

HOME PAGE: http://www.unizik.edu.ng/profile/nwokoyees

Otu Emmanuel

Federal University Otuoke

Otuoke
Ogbia L.G.A.
Ogbia, Bayelsa State 234
Nigeria

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