Asymmetric Effects of Monetary Policy on Agricultural Performance in Nigeria

Abstract

This study investigates the asymmetric effects of monetary policy on agricultural performance in Nigeria from 1981 to 2021, employing the Nonlinear Autoregressive Distributed Lag (NARDL) model. The analysis reveals an asymmetric relationship between monetary policy rates and agricultural output. In the short run, positive changes in the monetary policy rate significantly enhance agricultural performance, whereas negative changes have a less pronounced effect. Conversely, in the long run, negative changes in the monetary policy rate significantly hinder agricultural performance, underscoring the critical role of maintaining lower policy rates to support agricultural growth. Further, the positive changes in lending interest rates directly influence agricultural output, while negative changes exert indirect effects. However, long-run variations in lending rates, whether positive or negative, negatively impact agricultural performance, though insignificantly. Additionally, the liquidity ratio shows short-run significance, with positive changes enhancing and negative changes constraining agricultural performance. In the long term, liquidity ratio variations are not statistically significant. Finally, the study uncovers a counterintuitive finding: deposit money banks’ credit to agriculture negatively affects agricultural performance in the short run but exhibits a significant positive impact in the long run during periods of reduced credit. The findings suggest the maintenance of low monetary policy rates, improvement in credit allocation mechanisms, stabilization of financial institutions’ liquidity management, and implementation of targeted interventions such as subsidizing lending rates and strengthening agricultural credit schemes to drive sustainable agricultural growth in Nigeria.