Title: Impact Of Monetary Aggregates Misalignment On The Nigeria Economy
Authors: EMMANUEL, Evidence Osaro, EHIEDU, Victor C Ph.D
Volume: 9
Issue: 5
Pages: 144-159
Publication Date: 2025/05/28
Abstract:
This study critically examines the impact of monetary aggregates misalignment on Nigeria's economic performance, focusing specifically on the roles played by Interest Rate Spread Misalignment (IRSM), Exchange Rate Misalignment (ERM), Reserve Ratio Misalignment (RRM), and Broad Money Supply Growth Rate (BMSGR), with Real Gross Domestic Product Growth Rate (RGDPGR) serving as the proxy for economic growth. Covering a comprehensive study period from 1990 to 2024, the research adopts an ex-post facto design and utilizes annual time series data sourced from the Central Bank of Nigeria's Statistical Bulletin and Annual Reports. To ensure the statistical validity of the model, a series of diagnostic tests were conducted, including the Augmented Dickey-Fuller unit root test for stationarity, the Breusch-Godfrey LM test for serial correlation, the Breusch-Pagan-Godfrey test for heteroskedasticity, and the Ramsey RESET test for functional form specification. These diagnostics confirmed the appropriateness of the ARDL model. The methodology employed is the Autoregressive Distributed Lag (ARDL) model, which is particularly suitable for small-sample time series datasets with variables integrated at different levels (I(0) and I(1)). This econometric approach allows for robust estimation of both short-run adjustments and long-run equilibrium relationships between the dependent and independent variables. The findings from the study revealed that IRSM (short-run p = 0.1850; long-run p = 0.1970), ERM (short-run p = 0.2408; long-run p = 0.2483), and RRM (short-run p = 0.3581; long-run p = 0.3630) do not have statistically significant effects on RGDPGR in either the short or long term. This suggests that fluctuations or deviations in these monetary variables, although theoretically important, may not exert a strong direct influence on Nigeria's growth trajectory, possibly due to structural constraints or inefficiencies in the monetary transmission mechanism. Conversely, BMSGR emerged as the only variable with a statistically significant impact on RGDPGR in both the short run (p = 0.0325) and the long run (p = 0.0395), and the relationship was negative. This indicates that excessive or misaligned growth in the money supply adversely affects output, likely through inflationary pressures, exchange rate instability, or credit misallocation.The results underscore the importance of prudent and well-targeted liquidity management in monetary policy. The study concludes that while misalignments in certain monetary aggregates may not be immediately harmful, uncontrolled expansion of the money supply presents a significant risk to macroeconomic stability. Accordingly, the research recommends enhanced coordination between fiscal and monetary authorities, continuous monitoring of liquidity trends and the implementation of reform measures to strengthen the effectiveness of monetary policy instruments in promoting sustainable economic growth in Nigeria.