Interaction Between Monetary Policies and Stock Market Development in Nigeria: An Econometrics Analysis (Published)
This study explored the interplay between monetary policies and stock market development in Nigeria, focusing on key monetary policy variables such as interest rate, money supply, exchange rate, and liquidity ratio. Stock market development was measured through market capitalization. Anchored in Monetarism theory and the Efficient Market Hypothesis, the research utilized annual time series data spanning from 1990 to 2023, sourced from the Central Bank of Nigeria (CBN) statistical bulletin and Nigeria Exchange Group (NGX). Analytical methods included descriptive statistics, the Augmented Dickey-Fuller (ADF) unit root test, and the Autoregressive Distributed Lag (ARDL) approach. Results revealed that interest rates negatively and significantly impact stock market capitalization, while broad money supply and exchange rates exhibit positive and significant effects. Conversely, liquidity ratio was found to have a negative but non-significant impact on market capitalization. The study concluded that monetary policy serves as a critical stabilization tool influencing stock market development in Nigeria. It recommended that the Central Bank of Nigeria adopt a balanced approach in setting the Monetary Policy Rate (MPR) to effectively manage market expectations.
Keywords: Exchange Rate, Interest Rate, Liquidity Ratio, Monetary Policy, Money Supply, market capitalisation, stock market
Intertemporal Policy Mix and Stock Market Development in Nigeria (Published)
Given Nigeria’s position as an economic giant in the sub-Saharan Africa, analyzing the country’s macroeconomic policy coordination requires an understanding of its effectiveness in boosting the economy wide aggregate including stock market performance. This paper explores the effectiveness of intertemporal policy mix in fostering stock market development in Nigeria between 1986 and 2018. The specific objective focused on the effect of fiscal and monetary policy initiatives comprising public expenditure, public debt, treasury bill rate and broad money supply on the value of stock traded as a ratio of GDP. Year-end time series data on the variables were analyzed using error correction mechanism (ECM), diagnostics tests and descriptive statistics. The Philips-Perron unit root results reveal that the variables are stationary at first difference. Additionally, the cointegration test show evidence of long run relationship among the variables. It was observed from the estimated parsimonious ECM result that broad money supply and public expenditure positively and significantly influenced the value of stock traded. This indicates that public spending and monetary aggregates are the channels which monetary and fiscal policies foster the development of the stock market development in Nigeria. Given the findings, it is recommended for policy makers to synergize fiscal and monetary policy initiatives in order to foster robust and sustained development of the stock market in Nigeria.
Keywords: Fiscal Policy, Monetary Policy, Nigeria and ECM, Stock Market Development, intertemporal policy mix