Monetary policy and financial stability in Nigeria

Abstract

This study investigates the dynamic effects of monetary policy on financial stability in Nigeria between 1986 and 2017. This is with the view of assessing the relationship between the monetary policy transmission channels and financial stability in Nigeria. The study made use of secondary data. The variables, such as financial stability index, exchange rate channel, credit channel, interest rate channel, financial deepening and price stability were sourced from statistical bulletin of Central Bank of Nigeria (CBN), National Bureau of Statistics and World Development Indicators (WDI). Data collected were analysed within Vector Error Correction Framework. The results showed that exchange rate channel was a dominant channel of monetary policy transmission in Nigeria as far as financial stability was concerned. The study concluded that changes in monetary policy had a significant influence on financial stability in Nigeria and that exchange rate channel was the dominant channel of monetary policy transmission to ensure financial stability in Nigeria.