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Policy Reversals and Economic Development: A View from the Financial Sector

Adetiloye, K. A. and Taiwo, J.N. (2016) Policy Reversals and Economic Development: A View from the Financial Sector. In: 3rd International Conference On African Development Issues (CU-ICADI), May 9- May 11 2016, Covenant University, Ota, Nigeria.

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Developing countries have a variety of market instruments that monetary authorities target to influence the direction of growth of the economy. This paper studies the reversals and manipulations of the market variables of interest rate and exchange rate in the desired direction in which the country should advance. The study employs Granger VAR to estimate the data sourced from WDI and Central Bank of Nigeria. The endpoints targets of Credit to the Private Sector (CPS), Capital Formation and Gross Domestic Product were adopted for the study. The results show that interest rate is more significant in both differenced and non-differenced results. The impact of exchange rate is more evident in capital formation than in the others. Though all the endpoints show a high-level of significance at the overall level, interest rate is more highly significant than exchange rate, and RGDP is the most important for the entire variables as an endpoint. The paper recommends the active management of interest rate first to encourage investment rather than the current practice and for a reduction in the rate. Since the current management of the exchange rate is not sustainable, literature supports the management of the variables within control of the monetary authority while the external variable should be less actively managed.

Item Type: Conference or Workshop Item (Paper)
Uncontrolled Keywords: Policy reversal; interest Rate; Exchange Rate; Capital formation; Credit to the private sector; Gross domestic Product
Subjects: H Social Sciences > HG Finance
Divisions: Faculty of Law, Arts and Social Sciences > School of Social Sciences
Depositing User: Mrs Hannah Akinwumi
Date Deposited: 28 Jun 2016 12:51
Last Modified: 08 Aug 2016 11:27

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