Open AccessShocks to Monetary Policy Instruments: Does Credit to the Private Sector Respond in a Similar Manner to Public Sector Credit in Nigeria? A Vector Autoregressive Approach
Author(s) -
Nzeh Innocent Chile,
Benedict I. Uzoechina,
Millicent Adanne Eze,
Ozoh Joan Nwamaka,
Okoli Uju Victoria
Publication year - 2022
Publication title -
asian journal of economics and empirical research
Language(s) - English
Resource type - Journals
eISSN - 2518-010X
pISSN - 2409-2622
DOI - 10.20448/ajeer.v9i1.3803
Subject(s) - private sector , monetary policy , monetary economics , economics , variance decomposition of forecast errors , shock (circulatory) , public sector , money supply , interest rate , vector autoregression , econometrics , economy , medicine , economic growth
This paper aims to investigate the response of private and public sector credit to shocks in monetary policy instruments with a view to ascertaining if the responses differ. The study utilized the vector autoregressive (VAR) model with monthly data covering the period from 2010M1 to 2021M8. Findings show that credit to private sector responds positively to shocks in money supply and monetary policy rate (MPR) in all periods. However, the response to cash reserve requirement (CRR) was negative beginning from period five, and it also responded negatively to foreign interest rate shock. On the other hand, credit to government was found to respond positively to shocks in money supply up to period two and CRR in all the periods, but it responded negatively to MPR starting from period three. The results of the variance decomposition show that other than shocks to itself, which was 100% in the first period, shocks to other variables influence private sector credit. Also, other than shocks to itself, which was 99.89% in the first period, shocks to other variables lead to shocks to credit to government. We therefore recommend that policies used to influence financial intermediation should factor in the sensitivity of both public and private sectors to these policy instruments and the impact of exogenous shocks should be factored into policy formulation.