Innocent Chile Nzeh, Jonathan Ibekwe Okolie, Hycenth Richard Oguejiofoalu Ogwuru, David Ogomegbunam Okolie

Volume 6 Issue 4 | Dec 2023

DOI: 10.31841/KJEMS.2023.153

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Abstract

This study used the vector autoregressive (VAR) method to investigate how the monetary variables responded to the Central Bank of Nigeria's implementation of the sterilization policy. The study used monthly series that spanned the period from 2010M1 to 2021M3. The variables used are broad money supply (proxied by M2), Treasury bills rate, inflation rate, exchange rate and total sterilization. The data for all the series were obtained from the CBN Statistical Bulletin, except for data on foreign interest rates, which was obtained from the Federal Bank of St Louis. Findings revealed that money supply, exchange rate and inflation rate responded negatively to shocks in sterilization policy in all the periods. The response of Treasury bills rate to shocks in total sterilization was positive up to period two. However, the response became negative after period two. Consequently, the study concludes that the monetary variables responded appropriately to the policy adopted to neutralize the impact of capital inflows in Nigeria. The study recommends that the use of sterilization policy should be complemented with other policies to avoid repeated rounds of sterilization and that domestic investment outlets have to be developed to attract more local investors in the event of a rising domestic interest rate.
Keywords: Inflation rate, interest rate, money supply, exchange rate, sterilization policy