72 operational autonomy in decision- making; the degree of coordination between monetary and fiscal policies to ensure consistency and complementarity; the overall macroeconomic environment, including the stage of development, depth and stability of the financial markets as well as the efficiency of the payments and settlement systems; the level and adequacy of information and communication facilities; and the availability of consistent, adequate, reliable, high quality and timely information to the Bank. He stressed that seeking a proper role for monetary policy in promoting strong and sustainable growth in a stable macroeconomic environment in Nigeria is an on-going challenge for the Central Bank (Imoughele&Ismaila, 2014).
Based on the results of various previous studies conducted on the subject matter, this objective tends to bridge the gap by employing monetary policy tools on Manufacturing output of African emerging economies in Nigeria, Kenya and South Africa.
2.3.4 Monetary policy and Standard of Living proxy by Gross National Income per Capital
73 statistically significant between the difference of unemployment rate and poverty incidence, the study finds that there is no economic development but widening of the Gross Domestic Products.
Okorafor (2010) examine the impact of monetary policy instruments on the economic development in Nigeria during the period 1980-2006.With the aid of the t-ratio, the study revealed that only two out of the six selected explanatory variables exert a significant impact on the level of economic development in Nigeria between the study periods (pre-and-post-deregulation).
Gul, Mughal and Rahim (2012) review how the decisions of monetary authorities were influential on stabilizing price, economic growth, curtailing deficits in balance of payments and reducing unemployment level. The regression analysis showed that contractionary monetary policies with balanced adjustment of explanatory variables exerted favorable influence on the explained variable.
Akujobi (2012) investigate the impact of monetary policy instrument on economic development of Nigeria using multiple regression technique and found that treasury bill, minimum rediscount rate and liquidity rate have significant impact on economic development of Nigeria at both 1% and 5% levels of significance, treasury bill at 5.6%, minimum rediscount rate at 7.4% and liquidity rate at 7.7%, while interest rate was not significant at all.
Okwo, Eze and Nwoha (2012) examine the effect of monetary policy outcomes on macroeconomic stability in Nigeria. The study analyzed gross domestic product, credit to the private sector, net credit to the government and inflation using OLS technique. None of the variables were significant, which suggested that monetary policy as a policy option may have been inactive in influencing price stability in Nigeria.
74 Based on the fact that depleted literature exist on monetary policy and development indicator variables, this objective of the study intend to ascertain the effect of monetary policy on economic development proxy by gross national income in African emerging economies.
75 2.4 Summary of Empirical Review
No Author/Year Topic/Period covered Methodology Theoretical Framework
Conclusion/recommendation (Findings) 1 Khaysy, S. &
Gang, S. (2017)
The Impact of Monetary Policy on Economic Development: Evidence from Lao PDR
Johansen
Cointegration and Error
Correction Model
IS-LM model
The finding shows that money supply, interest rate and inflation rate negatively effect on the real GDP per
capita in the long run and only the real exchange rate has a positive sign.
2 Akanegbu, B. N.
& Gidigbi, M. O.
(2014)
An Assessment of the Economic Development Existence in
Nigeria
Time-series OLS regression analysis
The study discovered that there is no economic development existed in the country between the periods of 1986 to
2012 fiscal years.
3 Guantai, G. K, &
Rotich, G. (2016)
Effects of monetary policy measures on the economic growth in Kenya
Correlation and Regression
Analysis
Theory of Employment,
Interest, and Money
The findings further revealed that cash reserve ratio had positive but insignificant relationship with economic growth.
4 Okorafor, E. O.
(2012)
Monetary policy and economic development:
lessons from the deregulation policy in Nigeria
Mean and Standard
deviation
The study reveal that most of the variables in line with policy formulation and implementation inconsistencies appear to hinder the full impact of monetary policy on the
Nigerian economy 5 Akujuobi, L. E.
(2010)
Monetary Policy and Nigeria’s Economic Development
Ordinary Least Squares
regression model
The study found out that apart from cash reserve ratio, others did not impact much on the economic development of the nation and this may be as a result of the underdevelopment of the paths of these instruments such as the money and capital markets.
6 Fiador, V. O. L.
(2016)
Monetary Policy and Economic Performance – Evidence from
selected African countries
Autoregressive Distributed Lags (ARDL) Model
The study fails to find a growth impact for stock market development as well as confirm private capital as a function of interest rates.
76 7 Mansur, H. I. &
Ruzita, M. A.
(2005)
Exchange rate, monetary policy & manufacturing output in Malaysia
Generalized
impulse response function
J-Curve effect The study discovered that exchange rate shocks seem to have larger effects on the manufacturing output than on the aggregate output.
8 Bakare-Aremu, T. A. Osobase, A. O. (2015)
Effect of Fiscal and Monetary Policies on Industrial Sector
Performance- Evidence from Nigeria
Error correction mechanisms
model for OLS
The study established that stabilization policy has a great impact on manufacturing sector
performance and that if certain adjustment are made it would better the lots of the people by developing the sector, through Government fiscal policy and its monetary policy measures.
9 Imoughele, L. E.
&Ismaila, M.
(2014)
Empirical Investigation of the impact of Monetary Policy on Manufacturing sector Performance in Nigeria (1986 – 2012)
Granger Causality test,
co-integration and VAR model
Keynesian
theory and monetarist
theory
The study discovered that the manufacturing sector contribute insignificantly to the Nigerian economy
10 Onodugo, I. C., Okoro, O. E. U., Amujiri, B. A. &
Onodugo, V. A.
(2014)
The Impact of monetary policy regimes on performance of commercial banks in Nigeria
Regression model and Pearson Product moment correlation
techniques
Loan pricing theory
The study discovered that monetary policy regimes during the SAP period did not have significant impact on the total Assets value, deposit mobilization, loans and advances and credit to the private sector.
11 Ehinomen, E. &
Akorah, C. C.
(2014)
The Impact of Monetary Policy on Agricultural Development In Nigeria (1970-2010)
Ordinary Least Square method (OLS)
Keynesian
theory of Money
The result showed that although CBN’s monetary policies play crucial role in influencing the level of agricultural productivity in the country, it has not recorded significant progress in terms of providing enabling environment for better performance in the agricultural sector.
12 Toby, A. J. &
Peterside, D.
(2014)
Monetary Policy, Bank Management and Real Sector Finance in Nigeria: Who is to Blame?
multiple
regression models
The inferential results show that bank management decisions were significantly insensitive to the credit needs of the agricultural and manufacturing sectors.
12 CBN (2014) Effects of Monetary Policy on the
Real Economy of Nigeria:
A Disaggregated Analysis
Structural vector autoregressive (SVAR) framework
The results of the forecast error variance decomposition show that the most important monetary policy variables that explain the variation
77 in sectoral output are interbank call rate and money supply.
13 Adeleke, O.
&Ngalawa, H.
(2016)
Monetary policy
transmission and growth of the manufacturing
sector in Algeria
structural vector autoregressive model
the endogenous growth model
The study reveals that money supply variations are largely explained by changes in interest rates.
14 Okoye, L. U., Nwakoby, C. I.
N. & Modebe, N.
J. (2015)
Interest Rate Reform and Real Sector Performance:
Evidence from Nigeria
vector error correction model (VECM).
The study shows that exchange rate volatility has an insignificant positive impact on industrial output performance.
15 Uzoma, O. A., Bowale, E. E. &
Ogundipe, A. A.
(2017)
Monetary Policy Shocks and Manufacturing Sector Output in Nigeria: A Structural Var-approach
Structural vector autoregressive (SVAR) framework
Monetary transmission mechanism theory
The study discovered that the lending interest rate accounted for the biggest variance in the manufacturing contribution to gross domestic product as shown by the forecast error variance decomposition.
16 Omini, E. E., Ogbeba, P. E. &
Okoi, O. B.
(2017)
Monetary Policy Shocks and Industrial Output in Nigeria
VAR (VECM) model and Granger causality
test
The result of the study show that the contribution of manufacturing subsector to GDP responded positively to shocks in monetary policy, commercial bank credit to industrial sector and exchange rates, while contribution of solid minerals subsector to GDP responded positively to shocks in commercial bank credit to the industrial sector and exchange rate after the first year. The study further reveal that the causality test result indicated a unidirectional causality running from monetary policy rate and exchange rate to the contribution of manufacturing sector to GDP on the one hand, and commercial bank credit to the industrial sector and exchange rate to the contribution of solid mineral sector to GDP on the other.
17 Zare, R., Azali,
M. &
Monetary Policy and Stock Market Volatility in the ASEAN5:
Tested pooled mean group (PMG) technique
Markov-switching models and the
The results show that a contractionary monetary policy (interest rate increases) has a stronger long-run effect on stock market volatility in bear
78 Habibullah, M.
S. (2013)
Asymmetries over Bull and Bear Markets
rule based non-parametric approach
markets than bulls consistent with the prediction of finance constraints models.
18 Ioannidis, C.&
Kontonikas, A.
(2006)
Monetary Policy and the Stock Market: Some
International evidence
OLS regression model
Theory of transmission
mechanism
The result of the study indicates that monetary policy shifts significantly affect stock returns, thereby supporting the notion of monetary policy transmission via the stock market.
19 Seong, L. M.
(2013)
Transmission of Monetary Policy to the Stock Exchange:
Further Evidence from Singapore
Engle-Granger Cointegration, Engle-Granger two step Error Correction Model and Pairwise Granger Causality
Tobin's q theory
The result reveal there are short run and long run linkages between monetary policy instruments and Singapore stock exchange. The result further shows Granger causal relation from monetary policy instruments to the stock exchange.
20 Abaenewe, Z. C.
& Ndugbu, M.
O. (2012)
Analysis of the Effect of Monetary Policy
development on Equity Prices in Nigeria.
Ordinary least square regression (OLS)
Monetary policy transmission mechanism
The study has revealed that monetary policy has not made significant influence over the prices of ordinary equities in Nigeria.
21 Singh, A. (2014) A Study of Monetary Policy Impact on Stock Market Returns
Arch model This analysis proves that IIP is influenced by changes in CRR and interest rates is found to be non-significant when it comes to NIFTY volatility.
22 Aliyu, U. R. S.
(2014)
Reactions of Stock Market to Monetary Policy Shocks During the Global Financial Crisis: The Nigerian Case
GARCH New classical
macroeconomi cs and rational expectation hypothesis (REH).
The result of the analysis revealed that the un-anticipated component of policy innovations on M2 and MPR exerts distabilizing effect on NSE’s returns, whereas the anticipated component does not.
23 Nwakoby, C. &
Alajekwu, U. B.
(2016)
Effect of Monetary Policy on Nigerian Stock Market Performance
Johansen co-integration, OLS and granger causality tests
McKinnon-Shaw (1973) theories on finance and development
The study indicate that monetary policy has the potential (53%) to influence the stock market, but the causality analyses showed that monetary policy cannot influence stock market performance but rather stock market performance has influenced the
79
direction of monetary policy in Nigeria through lending and deposit rates.
24 Norfeldt, O.
(2014)
The effects of Monetary Policy on Stock Market Returns
Vector
autoregressive (VAR)
methodology.
There is a significant relationship between an expected change in the fed fund target rate and stock market returns
25 Anowor, O. F. &
Okorie, G. C.
(2016)
A Reassessment of the impact of Monetary Policy on Economic Growth: Study of Nigeria
Error Correction Model approach.
The result showed that a unit increase in Cash Reserve Ratio (CRR) led to approximately seven units increase in economic growth in Nigeria.
26 T.K. Jayaraman
& Dahalan, J.
(2010)
Monetary Policy
Transmission Mechanism in Samoa
VAR Model and Johansen Co-integration
The study findings are that money and exchange rate channels are important channels in
transmitting monetary impulses to Samoa’s real sector, followed by credit and interest rate channels.
27 Roşoiu, A. &
Roşoiu, I. (2013) Monetary Policy Transmission
Mechanism in Emerging Countries
Bayesian VAR approach
Classical and Keynesian
theories
Main result of the empirical study is that both interest rate and exchange rate channels are effective for the monetary policy transmission mechanism in Hungary and Czech Republic.
28 Mutwiri, N. M.
(2017)
Monetary policy tools and inflation in Kenya
Multiple regression
techniques (OLS).
Keynesian theory,
quantity theory of money and Monetarism theory
The findings of the study show that the policy makers need critical evaluation and monitor of money supply in Kenya so as to ensure a stable retail prices level.
29 Ridhwan, M. M., Groot, H. L. F.,
& Nijkamp, P. &
Rietveld, P.
(2010)
The Impact of Monetary Policy on
Economic Activity -Evidence from a Meta-Analysis
Vector
Autoregressive (VAR) models
Tobin’s q-theory
The findings reveal that capital intensity, financial deepening, the inflation rate, and economic size are important in explaining the variation in outcomes across regions and over time.
30 Nwoko, N. M., Ihemeje, J. C. &
The Impact of Monetary Policy on the Economic Growth of Nigeria
Ordinary Least Squares (OLS)
Keynesian
theory and
The findings from this study indicate that average price and labour force have significant influence
80 Anumadu, E.
(2016)
Monetarist theory
on Gross Domestic Product while money supply was not significant.
31 Obafemi, F. N. &
Ifere, E. O.
(2015)
Monetary Policy
Transmission Mechanism in Nigeria: A FAVAR
Impulse response function
FAVAR methodology
The results showed that interest rates and credit channels are the dominant and strongest channel of transmission of monetary shocks in Nigeria,
followed by Exchange rate and money channel.
32 Hakizamungu,
C., Mbabazi Mbabazize, M.
& Mulindabigwi, R. (2016)
Monetary Transmission Mechanism in Rwanda
Co-integration techniques, Variance decomposition
Keynesian IS-LM view
The results from the variance decomposition revealed that in long run the credit channel is more effective than other channels of monetary
transmission mechanism by affecting RGDP with a shock of 52.15% in long- run at the 64th period followed by interest rate channel and exchange rate channel respectively.
33 Alavinasab, S.
M. (2015)
Monetary Policy and Economic Growth: A case study of Iran
Error-correction model
IS-LM theory The findings of the study show that in the long run, economic growth has found to be significantly influenced by money supply, exchange rate and inflation rate.
34 Agbonlahor, O.
(2014)
The Impact of monetary policy on the economy of the United Kingdom: A Vector Error Correction Model (VECM)
Vector Error Correction Model (VECM)
Keynesian theory
The study discovered that the inflationary rate and money supply are significant monetary policy instruments that drive growth in the United Kingdom.
35 Chipote, P. &
Makhetha-Kosi, P. (2014)
Impact of Monetary Policy on Economic Growth: A Case Study of South Africa
Johansen co-integration and the Error Correction
Mechanism
IS-LM theory The finding of this study shows that money supply, repo rate and exchange rate are insignificant monetary policy instruments that drive growth in South Africa whilst inflation is significant.
Source: Researchers Compilation
81 2.5 Gap in the Literature
From the empirical review and summary of empirical findings objective by objective reviews, the study discovered the followings;
1. Most studies consider basic variables that are significant in present monetary policy directions in Treasury bill rate in Brima and Brima (2017), Akujobi (2012), Nwakoby and Alajekwu (2016) and Okpara (2010)
2. The study also discovered that most researches were swapping economic growth variables for economic development in (Khaysy & Gang, 2017; Akanegbu & Gidigbi, 2014 and Akujobi, 2012).
3. From the empirical review little or no study in Africa considers a panel data analysis on economic variables to the best of the researcher’s knowledge.
These form the basis for the study, by looking at how monetary policies have impacted economy of emerging African economies in Nigeria, Kenya and South Africa.
82 CHAPTER THREE
RESEARCH METHODOLOGY