Vol 8 No 2 (2021)
Articles

Does Sterilization Policy Exert an Upward Pressure on Interest Rate as Dictated by Theory? A Nigerian Example

Nzeh, Innocent Chile
Department of Economics, Renaissance University Ugbawka, Enugu State, Nigeria.
Nwogwugwu, Uche Collins
Department of Economics, Nnamdi Azikiwe University, Awka, Anambra State, Nigeria.
Nkamnebe, Ogochukwu Edith
Department of Economics, Nnamdi Azikiwe University, Awka, Anambra State, Nigeria.
Millicent Adanne Eze
School of Business, Law and Social Sciences, Abertay University, Dundee, United Kingdom.
Abubakar Yusuf
National Metallurgical Development Centre (NMDC) Jos, Plateau State, Nigeria.
Bartholomew.O.N. Okafor
Department of Economics, Nile University of Nigeria, Nigeria.
Published July 15, 2021
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243 Views | 125 Downloads
Keywords
  • Sterilization policy, Monetary policy, Capital inflows, Exchange rate, Interest rate, ARDL.
Citations
How to Cite
Chile, N. I., Collins, N. U., Edith, N. O., Eze, M. A., Yusuf, A., & Okafor, B. (2021). Does Sterilization Policy Exert an Upward Pressure on Interest Rate as Dictated by Theory? A Nigerian Example. Asian Journal of Economics and Empirical Research, 8(2), 48-57. https://doi.org/10.20448/journal.501.2021.82.48.57

Abstract

The implications of capital inflows on the economy and the fall out of the policy geared towards addressing these phenomena, especially the impact of the policy on interest rate motivated us in this study. Under the framework of ARDL and using monthly series over a period of 2010M1-2021M3, our findings showed that in the short-run, sterilization policy leads to rising interest rate in the current period. However, after a lag, sterilization policy depresses interest rate. We equally found that in the long-run, sterilization policy pushes interest rate up. In another direction, we observed a negative relationship between money supply and interest rate both in the short-run and in the long-run and the exogenous variables in the model influence interest rate significantly. We therefore recommend that different measures should be adopted to cushion the effect of unsustainable capital inflows to avoid repeated need for further sterilization and the increasing cost of sterilization in the long-run. It is also our advice that exogenous variables should be factored in when fashioning out a desirable interest rate in line with economic reality.

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