Monetary Policy Pass-Through to Unemployment Reduction in Nigeria

Abstract

The Nigerian economy has witnessed several structural changes with varying impacts on the level of unemployment which is one of the major threats to macroeconomic stability in the economy. This paper examined the impact of monetary policy mechanisms and unemployment reduction in Nigeria from 1986 to 2022. The theoretical framework of this paper was anchored on the job search and Keynesian theories of unemployment, and the data used in this paper are unemployment, broad money supply, prime lending rate, foreign direct investment, private sector credit, and population growth and inflation rate. The analytical techniques of this paper included the dynamic autoregressive distributed lag and the Granger causality approaches.  The data for these variables were sourced from the Statistical Bulletin of the Central Bank of Nigeria and the National Bureau of Statistics. The result showed that the prime lending rate was positive and significant at the 5 percent level of significance, while broad money supply was negative and significantly correlated with unemployment. The lagged value of inflation rate were positively and significantly correlated with unemployment. Furthermore, the Granger causality test showed that there is no causality between broad money supply and unemployment rate, while unidirectional causality existed between unemployment and private sector credit. This paper recommended among others that macroeconomic stability is necessary through employment generation by enhancing the productivity of the Nigerian economy through accessibility of credit by the private sector.