The Impact of Monetary Policy on Balance of Payments in Nigeria (1983-2018)

Abstract

This study investigates the impact of monetary policy on balance of payments in Nigeria from 1983 to 2018. It employs the Autoregressive Distributed Lag (ARDL) model, using data such as exchange rate, interest rate, money supply, inflation and balance of payments. The findings of the study reveals that the major reason for the negative disequilibrium in the Nigeria’s balance of payments is that it absorbs more than it produces as such, domestic expenditure is greater than the national output. The result shows that exchange rate and interest rate have negative and significant impact on balance of payments in both the long run and short run; money supply is also revealed to be negative in both the long run and short run but only significant in the long run; inflation on the other hand is positive and not significant in the long run and negative and significant in the short run. It therefore concludes that balance of payments is indeed a monetary phenomenon and that the depreciation of currency does not favours the Nigerian balance of payments and recommends export promotion strategies to increase export and maintain the value of the country’s currency.