IMPACT OF MONETARY POLICY ON ECONOMIC PERFORMANCE: A NON-LINEAR ARDL APPROACH

Abstract

Monetary policy plays a significant role in driving the economy of any nation. This study 
aimed to examine the impact of monetary policy on economic performance in Nigeria 
from 2006Q1 to 2023Q4. The study utilized both Autoregressive Distributive Lag (ARDL) 
and Non-Linear ARDL (NARDL) models to investigate the asymmetric impact of 
monetary policy on economic performance in the short and long term. The study used 
real GDP as a proxy for economic performance and considered exchange rate and 
money supply as independent variables representing monetary policy. The findings 
showed an insignificant negative relationship between monetary policy variables (money 
supply and exchange rate) and economic performance in the short run using the ARDL 
technique. The NARDL results also demonstrated that money supply and exchange rate 
had a negative insignificant effect on economic performance in the long run. From these 
results, it was concluded that there is no relationship between economic performance and 
monetary policy in both short-run and long-run periods. Based on these findings, it is 
recommended to manage monetary policy to attract domestic and foreign investment by 
maintaining an appropriate quantity of money supply and the central bank should use 
other instruments aside from exchange rate to motivate the economic performance of the 
nation.