Impact of Monetary Policy on Consumption Expenditure in Nigeria

Abstract

This study examined the impact of monetary policy on consumption expenditure in Nigeria using annual data from 1986 to 2021. The model for the work was built using Friedman’s permanent income hypothesis. The study adopted the autoregressive redistributed lag model (ARDL), which shows that there is a long-run relationship between monetary policy and consumption expenditure. Data for the study was sourced from the Central Bank of Nigeria's statistical bulletin (2021) and the World Bank (2021). The variables of the model include; interest rate, money supply, exchange rate, Treasury bill, reserve requirement, and inflation as independent variables, while consumption expenditure was captured using durable and non-durable consumer goods. The findings revealed that interest rate, money supply, exchange rate, Treasury bill, reserve requirements, and inflation had a significant impact on consumption expenditure for the period under review in Nigeria. Based on the findings, the study recommends that the monetary authorities use the policy instruments at their disposal to influence consumption expenditure especially the durable component in the desired direction given that it’s a signal of pessimism or optimism of future economic conditions.