Impact of Personal Remittances on Monetary Policy Variables in Nigeria: An Autoregressive Distributed Lag (ARDL) Approach

International Journal of Research and Innovation in Social Science (IJRISS) | Volume III, Issue V, May 2019 | ISSN 2454–6186

Impact of Personal Remittances on Monetary Policy Variables in Nigeria: An Autoregressive Distributed Lag (ARDL) Approach

James Tumba Henry¹, Enam Pagiel Abalis²

^1,2Department of Economics, Faculty of Social and Management Sciences, Adamawa State University, Mubi, Nigeria

Abstract: – Nigeria is one of the countries with high personal remittances inflows in the world. However, these inflows have serious implications for the effectiveness or otherwise of the CBN’s objective of price stability. This is because they are not properly tracked and captured when designing monetary policy targets. Thus, this study was conceived to investigate the impact of personal remittances on monetary policy variables within a linear Autoregressive Distributed Lag (ARDL) model. Three equations were developed and secondary data from 1980 to 2016 was assembled for this study. The hypotheses stated in this study were tested at 10% and 5% levels of significance. The result obtained revealed that personal remittances and consumer price index have a positive and significant impact on broad money supply in the long and short runs within the period of study. It was therefore recommended that the CBN should keep track of all remittances inflow into the country by enacting laws that will encourage the transfer of remittances through financial institutions and prohibits transfer through other means.

Keywords: personal remittances, monetary policy targets, broad money supply

I. INTRODUCTION

The major objective of monetary policy in Nigeria is to ensure price and monetary stability so as to foster sustainable and inclusive economic growth. This can only be achieved when the prices of goods and services in the home economy is kept low and stable over a given period of time. Mbutor (2010) opined that sound monetary policy can help achieve financial stability by attracting personal remittances especially in the form of savings. Conceptually, monetary policy refers to the process by which the central bank of a country manages the cost of credit and supply of money, often targeting an inflation rate or interest rate to ensure price stability. On the other hand, personal remittances are the money sent by a person or worker in a foreign land to his or her home country (Ruiz & Vargas-Silva, 2010). Remittances inflows are playing a significant role in the economies of many countries, especially economies of developing countries.

Read More