ANALYSIS OF THE TRANSMISSION MECHANISM OF MONETARY POLICY ON THE NIGERIAN ECONOMY: 1987-2018

The study investigated on the analysis of transmission mechanism of monetary policy on the Nigerian economy for the period 1987 to 2018. The study examined the level of success of monetary policy measures against desired objectives and the appropriate measures for achieving it. The study employed quantitative research approach, which involves the utilization of annual time series data using Auto regressive Conditional Heteroscedascity (ARCH) and Generalize Auto regressive Conditional Heteroscedascity (GARCH) techniques. ARCH LM test and JB normality test were also employed as diagnostic tests to investigate the reliability of the variables used. The result in model one showed that Money Supply (MS) and Monetary Policy Rate (MPR) have impacted significantly on Real Gross Domestic Product (RGDP) in Nigeria without the result of liquidity ratio. And in model t\’o, both Monetary Policy Rate (MPR), Prime Lending Rate (PLR) and Treasury Biljs (TRB) affect Cost of Capital (CCAP). While in model three, both Money Supply (MS) and Cash Reserve Requirement (CRR) have impacted positively on Household Investment Expenditure (HEXP) except Maximum Lending Rate (MLR).The study showed that, the transmission of monetary policy is fairly strong in the entire three models. This implies that the effectiveness of Monetary Policy Rate (MPR) on the third model depends on its effect on money supply. The study therefore recommends that Open Market Operations (OMO) may be critical to the effectiveness of monetary policy in Nigeria. Specifically, the government through the CBN should set the lending rates at optimum level as these would help to boost credit expansion, money supply and invariably returns and profitability of deposit money banks in Nigeria, as well as redefining reserve requirement by setting the CRR at an equilibrium level in order to make more funds available for loans and investments in the economy thus, leading to economic growth.