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Monetary Policy Shocks and Manufacturing Sector Output in Nigeria: A Structural Var-Approach

Abstract

Over the years, the manufacturing sector has responded relatively low compared to other sectors such as services, agriculture, crude petroleum and natural gas despite its huge potential and various policies proposed towards a growth in the sector. This study investigated the effect of monetary policy on the manufacturing sector output in Nigeria using a quarterly data from 1981 to 2015 employing the structural vector autoregressive(SVAR) framework. An eight variable SVAR for manufacturing sector output was employed. The study examined the effect of monetary policy using the four monetary transmission mechanism channels and included a fiscal policy variable as well as labor and capital in the model. The short-run SVAR showed that only monetary policy rate and money supply conformed to theory. The impulse response functions showed that all monetary variables as well as other variables with the exception of government expenditure conformed to economic theory. One major finding of the study is that the lending interest rate accounted for the biggest variance in the manufacturing contribution to gross domestic product as shown by the forecast error variance decomposition. The study recommends that the monetary authority should ensure that the lending interest rate to the manufacturing sector is within a single digit, accessible, affordable and sustainable so as to ensure a greater productivity in the sector

Ogundipe AA, Uzoma OA, Bowale EE

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