INTEREST RATE AND CREDIT SENSITIVITY OF SECTORAL OUTPUT IN NIGERIA

Ikechukwu Kelikume

The International Journal of Business and Finance Research, 2015, vol. 9, issue 4, 103-114

Abstract: The Keynesian framework for the transmission of monetary policy to real sectors of the economy proposes that changes in the cost of capital will lead to changes in investment culminating to a change in output measured in GDP. Conventionally, a reduction in interest rate will all things being equal stimulate economic activities that will trigger substantial growth in the economy. The existence of structural rigidities in most developing countries like Nigeria renders monetary policy ineffective and distorts the link between interest rates and sectoral output performance. This study seeks to investigate the relative responsiveness of sectoral output to changes in interest rate and credit allocation in Nigeria. The study will make use of quarterly time series data spanning over a period of 23 years, sourced directly from the CBN and the National Bureau of Statistics. The paper utilized the impulse response function and Granger causality test to examine the sensitivity of sector output to changes in interest rate and credit. The intention is to understand the dynamic sensitivity of sectoral output to changes in interest rate and credit allocations. The result obtained from the study show the various sectors of the Nigerian economy responds significantly to credit allocation but not to interest rate. The result concludes that the use of interest rate to influence sector output growth for Nigeria is in-effective while efforts should be channelled at selective credit allocation and a mix of monetary and fiscal policy to achieve the desired macroeconomic short term and long term goals

Keywords: Interest Rates; Credit Sensitivity; Sectoral Output (search for similar items in EconPapers)
JEL-codes: E23 E43 E51 (search for similar items in EconPapers)
Date: 2015
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