transparency in monetary and financial policies

8/14/2019 Transparency in Monetary and Financial Policies

1/79

TRANSPARENCY IN

MONETRY AND

FINANCIAL

POLICIES:

THE NIGERIA

PERSPECTIVE.

1


2/79

BY

..

AKP/WRR/BMG/BUS/HND2007/.

A PROJECT WRITTEN IN DEPARTMENT OF

BUSINESS ADMINISTRATION, SCHOOL OF

BUSINESS STUDIES COLLEGE OF

ACCOUNTANCY AND COMPUTER TECHNOLOGY.

2


3/79

IN PARTIAL FULFILMENT OF THE REQUIREMENT

FOR THE AWARD OF THE HIGHER NATIONAL

DIPLOMA IN BUSINESS ADMINISTRATION

NOVEMBER 2009

CERTIFICATION

This is to certify that this project work was carried out by in

the Department of Business Administration, School of Business

Studies for the award of higher national diploma in business

administration.

3


4/79

.. .

Project Supervisor Centre Coordinator

... .

Date Date

4


5/79

DEDICATION

This research work is dedicated to the Almighty God for seeing me

through the whole period of the program and granting me academic

excellence despite the difficulty encountered.

5


6/79

ACKNOWLEDGEMENT

6


7/79

To God be the glory for its not by my power nor my might but by His

grace that is superfluous and more than sufficient. I thank Him for

making this programme a reality.

I am also grateful to my supervisor Emmanuel N. Bassey for his

painstaking and thoroughness in supervising this project.

I acknowledged the immense support I received from my family

especially their encouragement during the period of the programme.

The cooperation and the encouragement of my supporting staff who

always stand in for me anytime I am away.

This acknowledgement will be incomplete without noting the

contribution of the following people to the success of the programme,

the school registrar, the assistance registrar and other friends who

had contributed in one-way or the other to the successful completion

of the programme.

A special word of thanks go to staff of C.A.C.T. Publishers in typing

the various draft of the manuscript.

7


8/79

I wish to conclude this acknowledgement by expressing my sincere

appreciation to all my colleagues for their friendly disposition towards

me during the period of the programme. MAY GOD BLESS YOU ALL.

8


9/79

ABSTRACT

The design of the good transparency practices in the Code rests on

two principles. First, monetary and financial policies can be made

more effective if the public knows the goals and instruments of policy

and if the authorities make a credible commitment to meeting them.

Second, good governance calls for central banks and financial

agencies to be accountable, particularly where the monetary and

financial authorities are granted a high degree of autonomy.

The Code contains a listing of broad principles related to transparency

for monetary and financial policies that central banks and financial

agencies should seek to achieve. As a guide to their implementation,

the IMF staff, in cooperation with relevant international organizations

and in close consultation with officials from central banks and financial

9


10/79

agencies from the Fund membership, has prepared a supporting

document to the Code.

TABLE OF CONTENT

Title page - - - - - - - - i

Certification page - - - - - - - - ii

Dedication page - - - - - - - - iii

Acknowledgment page - - - - - - - iv

Abstract page - - - - - - - - vi

Table of content - - - - - - - - vii

CHAPTER ONE INTRODUCTION

1.0 The background of the study - - - - - 1

1.1 Statement of the research problem - - - - 2

1.2 The objective of the study - - - - - 3

10


11/79

1.3 The Significance of the study - - - - - 4

1.4 The scope of the study - - - - - - 5

1.5 Limitation of the study - - - - - - 6

1.6 Research methodology - - - - - - 6

1.7 Research hypotheses - - - - - - 7

1.8 Operation definition of terms - - - - - 8

CHAPTER TWO- LITRATURE REVIEW

2.0 Economic reforms and monetary policy - - 10

2.1 Monetary policy implementation - - - 17

2.2 Monetary policy management - - - - 21

2.3 What is monetary policy - - - -- 28

2.4 Expansionary monetary policy - -- 29

2.5 Restrictive monetary policy - - - - 30

2.6 Administration of policy in Nigeria - - - 32

2.7 Objectives & roles of monetary

Policy in a development economy - - - 33

11


12/79

2.8 Conflicts in the achievement

of monetary policy objective - - - - 33

2.8.1 Necessary conflicts - - - -- 34

2.8.2 Policy conflicts - - - - - - 35

2.8.3 Conflicts resolution - - - -- 36

2.9 Limitations of monetary policy in

less developed countries (LDCs) - - - 36

CHAPTER THREE

RESEARCH METHODOLOGY AND DESIGN

3.1 Introduction - - - - - -- 40

3.2 Research methodology - - - - - 40

3.3 Research design - - - - - - 41

3.4 Sources of data - - - - - - 42

3.5 Secondary data - - - - - - 42

3.6 Population description - - - - - 43

3.7 Sample size - - - - - -- 43

3.8 Instruments for data collection - - - 44

3.9 Methods of data analysis - - -- 44

12


13/79

3.10 Model specification and estimatation techniques 44

3.11 Statistics for testing hypotheses - - - 46

CHAPTER FOUR

DATA PRESENTATION , ANALYSIS OF RESULTS AND INTERPRETATION

4.1 Introduction - - - - - - 49

4.2 Presentation and analysis of data - - - 50

4.3 Testing the hypotheses - - - - - 51

4.4 Research findings - - - - - - 54

CHAPTER FIVE

SUMMARY ,CONCLUSIONS AND RECOMMENDATION

5.1 Introductions - - - - - - 55

5.2 Summary - - - - - - - 55

5.3 Conclusion - - - - - - - 57

5.4 Recommendations - - - - -- 61

5.5 Recommendations for further study - - 66

13


14/79

CHAPTER ONE

INTRODUCTION

1.0 THE BACKGROUND OF THE STUDY

Monetary management deals with the control of the money stock (or

liquidity) and, therefore, interest rates, in order to influence such

macroeconomic variables as domestic prices, employment, balance of

payments and aggregate output in the desired direction. There is no

standard or ideal structure of monetary policy targets and instruments.

The structure varies from country to country, depending on the size

and stage of development of the financial market, and for any one

country, the optimal targets and structure change over time. Where the

financial environment is under-developed, the instruments of monetary

management tend to be limited largely to direct measures, such as

administered interest rates regimes, directed credit, and mandatory

guidelines to banks. Market-based instruments, on the other hand,

usually work best in economies where the financial market is developed

and the real sector is responsive to changes in monetary policy stance.

The institutional framework for monetary and financial policies

management is usually provided by the law, which defines the

relationship between the central bank and its stakeholders. Also, since

monetary and financial policies are part of the overall national

economic policy, efforts are normally made to reconcile and harmonise

14


15/79

them with the various policies of government to ensure consistency and

effectiveness.

In Nigeria, monetary and financial policies are carried out by the

Central Bank of Nigeria in collaboration with the other relevant

regulatory agencies of the government. However, the instrument

autonomy granted to the bank in 1998 insulates it from undue political

interference in its conduct of monetary and financial policies and,

thereby, enable it to act more pro-actively and promptly in its policy

responses to changes in economic conditions.

1.1 STATEMENT OF THE RESEARCH PROBLEM

The study is a worth-while effort in that it will avail the researcher of

the opportunity to make a categorical statement based on the findings

of the study, on the relative effectiveness of the use of monetary

policy.

To appreciate the mechanism for managing the monetary and financial

system, it is pertinent to understand why the authorities pay so much

attention to a sound and stable financial system, and why attempts are

usually made to strike a balance between the growth of monetary

aggregates and macroeconomic stability. A sound and efficient financial

15


16/79

system provides a medium for financial intermediation to take place

and for resources to be deployed efficiently for greater productivity.

In the conduct of monetary policy, the authorities focus on controlling

the growth of money because empirical evidence suggests that

excessive monetary growth leads to an unstable macroeconomic

environment with its attendant adverse consequences for economic

activities. Thus, central banks deliberately strive to control the rate of

growth of money supply in order to influence key macro variables and

economic activities in general, in the desired direction.

1.2 THE OBJECTIVE OF THE STUDY

It would have been a total waste of time, efforts, energy and of

course fund, in conducting this research if it was not meant to

achieve any meaningful objectives the research would also have

been seen as a fruitless exercise if there were no fundamental

objectives to be achieved at the end of the study. The objectives

of the study therefore were:

(i) To investigate the role and the relative efficiency of the use

of monetary policy In Nigeria

16


17/79

(ii) To find out whether or not, monetary policy is effective in

the control of inflation in the Nigerian economy.

(iii) To enable the researcher to avail herself of the opportunity

to contribute her quota to the pool of knowledge on the

formulation, implementation and management of monetary

policy in Nigerian

(iv) To provide an objectively sufficient ground for the

researcher to make contributions to the "GREAT DEBATE"

as to which policy package appears to be the most effective,

weapon of management and stabilisation of the Nigerian

economy.

1.3 THE SIGNIFICANCE OF THE STUDY

The researcher has no doubt whatsoever, that the findings and

recommendations presented and offered respectively in this

study, will be of immense benefit to the following categories of

people among others:

(i) POLICY MAKERS OR FORMULATORS

Makers or formulators of macroeconomic policies, economic

planners, and economic advisers to the Federal Government

of Nigerian, will find the recommendation in this study very

useful in the performance of their respective duties. This is so

17


18/79

because they (policy makers economic planners) can use the

research report as a guide while formulating some important

macroeconomic policies.

(ii) OTHER RESEARCHERS

Other researchers can also use the work as a reference material

where and when necessary.

(iii) RESEARCH STUDENTS

Research students will equally find the findings and

recommendation offered in this study very useful for further

research and for reference purposes, especially if they (students)

are researching into a related area.

1.4 THE SCOPE OF THE STUDY

The study was conducted for the purpose of evaluating the

relative effectiveness of the use of monetary policy in Nigeria,

hence the study encapsulates an examination of the relative

efficacy of the use of monetary policy, instrument in the control

of the Nigerian economy. The study also examined some related

policy instrument or tools used in fine-turning the economy

(Nigerian Economy).

18


19/79

1.5 LIMITATION OF THE STUDY

The task of carrying out a Research work requires spending

times, money, energy and the necessary manpower to have the

study completed. furthermore, the present economic relate

realities in the country (Nigeria) act as impediments to a wider or

multinationals coverage of a research exercise to this nature.

Based on the forgone factors or constraints, the researcher, in

carrying out this study, limited herself to the Nigerian economy

only.

However, other researchers may wish to conduct a similar study

in other less developed countries (LDLS) and the developed

countries (DCS) alike,

1.6 RESEARCH METHODOLOGY

For a proper or adequate attainment of the objectives of the

study, the research work was organised into five (5) chapters.

Chapter one (1) introduces the study and explored the

background to the study. it also deals with other relevant issues

in the study, such as the problem of the study, the objectives of

the study, the scope of the study, the significance, and its

limitations.

19


20/79

The chapter also disuses the research hypothesis, methodology of

the study and the operational definition of terms used in the

study.

chapter two (2) contains a review of related literature on the

problem under study chapter three (3) deals with the design of

the study with regards to gathering or collection of data and the

instruments used in analysing it.

In chapter four (4) the data so collected, are presented,

analysed and interpreted accordingly.

Chapter five (5) which is the last but not the least gives the

summaries conclusions drawn from the findings, and the

recommendation made by the researcher.

1.7 RESEARCH HYPOTHESES

In view of the problems earlier defined in this study, and the

objectives of this study which have been the Transparency in

monetary and financial policy in Nigeria, the following Research

Hypotheses were being formulated:

20


21/79

HYPOTHESIS ONE (1)

NULL HYPOTHESIS (Ha):

H1: a1 = O: Monetary and financial policies are not geared

towards providing a sound and stable financial environment.

ALTERNATIVE HYPOTHESIS (H1):

H1: a1 = O: monetary and financial policies are geared towards

providing a sound and stable financial environment

HYLPOTHESIS TWO (2)

NULL HYPOTHESIS (H0):

HO:a2 = 0: Monetary management does not deal with the

control of the money stock (or liquidity)

ALTERNATIVE HYPOTHESIS (H1):

H1: a2 = 0: monetary management deals with the control of the

money stock (or liquidity)

1.8 OPERATION DEFINITION OF TERMS

In order to foster a proper understanding of the research report,

and to expose readers to the tenets of the study, some terms which

were used in their operational or contextual sense rather than in

their literary or lexical sense, were variously defined or explained:

21


22/79

AN ECONOMY

According to Lipsey (1963), as cited in Anyanwu (1997), An

economy refers to any specified collection of interrelated marketed

and non-marketed productive activities in a country.

22


23/79

CHAPTER TWO

LITERATURE REVIEW

2.0 Economic Reforms and Monetary Policy

Direct controls, pervasive government intervention in the financial

system resulting in the stifling of competition and resource

misallocation, necessitated the introduction of the Structural

Adjustment Programme (SAP) in 1986. SAP was a comprehensive

economic restructuring programme which emphasized increased

reliance on market forces. In line with this orientation, financial sector

reforms were initiated to enhance competition, reduce distortion in

investment decisions and evolve a sound and more efficient financial

system. The reforms which focused on structural changes, monetary

policy, interest rate administration and foreign exchange management,

encompass both financial market liberalization and institutional building

in the financial sector. The broad objectives of financial sector reform

include:

Removal of controls on interest rates to increase the level of savings

and improve allocative efficiency;

Elimination of non-price rationing of credit to reduce misdirected credit

and increase competition;

23


24/79

Adoption of indirect monetary management in place of the imposition of

credit ceiling on individual banks;

Enhancing of institutional structure and supervision;

Strengthening the money and capital markets through policy changes

and distress resolution measures;

Improving the linkages between formal and informal financial sectors.

The implication of these reforms on monetary policy

-Increase in the number of Banking Institutions

One of the objectives of financial reforms was to provide a liberalized

and level playing field for the emergence of effective and efficient

institutions that would serve as an engine of growth for the economy.

Consequently, innovative institutions were encouraged to take

advantage of the opportunities created by the financial liberalization

policies. The structural changes in the financial sector were designed to

increase competition, strengthen the supervisory role of the regulatory

authorities and streamline public sector relationship with the financial

sector. As part of the reform programme, operating licences for

opening bank house were liberalized. Prior to 1986, Nigeria had only 40

banks, but the number increased progressively to 120 in 1992. By

1998, however, the number of banks in operation declined to 89 as a

result of the liquidation of over 30 terminally distressed banks. Other

24


25/79

types of financial institutions also increased substantially. Indeed some

of these institutions, such as the discount houses and bureaux de

change were not in existence before 1986. The capital base of all the

financial institutions was also increased. For instance, the minimum

capital requirements of banks stood at N500 million with effect from

December, 1998 compared with N10 million and N6 million for

commercial and merchant banks, respectively, in 1989.

-New Products Development

The reforms in financial sector created certain salutary effect on the

financial system. Some of such effects include improved service

delivery through new innovations and product development. The use of

modern technology enhanced service delivery and eliminated queues in

banking halls which used to be the common feature of banks in Nigeria.

Also, Automated Teller Machines (ATMs) were installed at designated

points across the country to further reduce customer traffic to banks for

cash withdrawals. The use of debit and credit cards was also being

popularized by some banks to reduce the risk of carrying cash for

transactions. Thus, the 1986 reform introduced e-money in Nigerias

banking lexicon.

25


26/79

-Shift in Monetary Policy Management

It would be recalled that the direct approach to monetary management

was the main technique of monetary policy implementation in Nigeria

before the introduction of the Structural Adjustment Programme (SAP).

Between 1986 and 1993, the CBN made efforts to create a new

environment for the introduction of indirect approach to monetary

management. A major action taken as part of the monetary reforms

programme was the initial rationalization and eventual elimination of

credit ceilings for selected banks that were adjudged to be sound. After

the initial test run of the indirect monetary management approach,

monetary management shifted to the indirect approach in which Open

Market Operations (OMO) was the principal instrument of liquidity

management. Since the introduction of the indirect approach, the

primary and secondary markets for treasury securities have been

developed to take advantage of liberalization introduced through the

reforms. Discount houses, banks and recently some selected

stockbrokers are now very active in the primary market for treasury

bills.

-Interest Rate Regime

In August, 1987 the CBN liberalized the interest rate regime and

adopted the policy of fixing only its minimum rediscount rate to indicate

the desired direction of interest rate. This was modified in 1989, when

the CBN issued further directives on the required spreads between

26


27/79

deposit and lending rates. In 1991, the government prescribed a

maximum margin between each banks average cost of funds and its

maximum lending rates. Later, the CBN prescribed savings deposit rate

and a maximum lending rate. Partial deregulation was, however,

restored in 1992 when financial institutions were required to only

maintain a specified spread between their average cost of funds and

maximum lending rates. The removal of the maximum lending rate

ceiling in 1993 saw interest rates rising to unprecedented levels in

sympathy with rising inflation rate which rendered banks high lending

rates negative in real terms. In 1994, direct interest rate controls were

restored. As these and other controls introduced in 1994 and 1995 had

negative economic effects, total deregulation of

interest rates was again adopted in October, 1996.

-The Payment System

The Nigerian payments underwent substantial modernization of the

process for handling payments with the implementation of the Magnetic

Ink Character Recognition (MICR), which involved the phased adoption

of MICR technology for processing of inter-bank transfer and in-house

cheques. This was followed by the establishment of Automated Teller

Machine (ATMs) by most banks for cash dispensing, account balance

enquiry and payment of utility cheques. The ATMs in addition provided

the basis for setting up electronic links to on-line customers and other

accounts system among bank branch network to facilitate payments

27


28/79

service. To further improve the efficiency of the payment system, the

CBN in 2004 issued the broad guidelines on electronic banking (e-

banking). E-banking practice in Nigeria will continue to be promoted in

line with global trend. The Bank will continue to encourage banks to

install ATM machines for cash withdrawals. Also, in order to encourage

the use of electronic money (e-money), in line with international best

practices, the Bank continues to issue specific guidelines on standards

and use of e-money products such as credit cards, debit cards, digital

cash etc. With the recent revolution in the telecommunication sector,

the environment for efficient e-banking service delivery has been laid.

The CBN has continued to promote the automation of the payments

system to reduce delays in the clearing of payment instruments;

reduce cash transactions; and enhance the transmission mechanism of

monetary policy. In order to deal with large-value payments and

settlements, the CBN has embarked on the implementation of Real

Time Gross Settlement (RTGS) system. The RTGS will eliminate the risk

in large-value payment,

and increase the efficiency of the payment system.

-Foreign Exchange Management

As part of the reforms, the foreign exchange market was liberalized

with the reintroduction of the Dutch Auction System (DAS) in July 2002

28


29/79

with the objectives of realigning the exchange rate of the naira,

conserving external reserves, enhancing market transparency and

curbing capital flight from the country. Under this system, the Bank

intervened twice weekly and end-users through authorized dealers

bought foreign exchange at their bid rates. The rate that cleared the

market (marginal rate) was adopted as the ruling rate exchange rate

for the period, up to the next auction. DAS brought a good measure of

stability in exchange rate as well a reduction in the arbitrage premium

between the official and parallel market rates.

To further deregulate the foreign exchange market and also demystify

access to Travelers Cheque (TCs) by end-users, Travelex Global and

Financial Services and American Express (AMEX) commenced the direct

sale of TCs to end-users in February 2002. The initiative, among

others, was aimed at addressing some travel-related problems

associated with foreign exchange utilization. Specifically, the objectives

were to: facilitate easy access to travelers cheque by end-users;

reduce the transaction cost to end-users of travelers cheque; eliminate

the use of spurious documents in obtaining TCs; reduce the gap

between the official and parallel market exchange rates; and encourage

the growth of bureaux de change operations.

29


30/79

Other measures adopted to enhance the operational efficiency of the

foreign exchange market included the unfettered access granted

holders of ordinary domiciliary accounts to their funds, while utilization

of funds in the non-oil export domiciliary accounts were permitted for

eligible transactions. Furthermore, inward money transfers became

payable in the currency of remittance. All oil and oil service companies

were allowed to continue to sell their foreign exchange brought into the

country to meet their local expenses to any bank of their choice,

including the CBN. Procurement of foreign exchange for Business Travel

Allowance (BTA) and Personal Travel Allowance (PTA) remained eligible

in the foreign exchange market, subject to a maximum of US$2,500.00

per quarter for BTA and US$2,000.00 twice a year for PTA for

beneficiaries above 12 years old. For travels to countries in the

ECOWAS sub-region, BTA and PTA are issued in ECOWAS travellers

Cheques.

2.1 Monetary policy implementation

The International Monetary Fund (IMF) has called on the Federal

Government to ensure a consistent implementation of a clearly

articulated monetary policy framework.

According to the Brentwood organization, such monetary policy must

focus on price stability and based on the relationship between monetary

30


31/79

aggregates and inflation, is needed to anchor inflation expectations and

establish credibility.

In its Public Information Notices (PINs) after its executive board

concluded Article IV Consultation with the authorities, the Fund said

that effective communication of the framework will also be critical.

It stated, Our directors welcomed the authorities intention to do so.

Directors also welcomed the plans to move forward cautiously with the

adoption of an inflation-targeting framework, with due attention to the

necessary institutional underpinnings for such a regime.

IMF supported the increased flexibility of the exchange rate in recent

months, which will support the implementation of monetary policy

focused on price stability, noting that the level of the naira is consistent

with external stability.

It welcomed the measures taken to identify and resolve problems in

bank balance sheets, while the system as a whole has significant

capital, individual banks that pursued high-risk strategies and allegedly

31


32/79

violated governance and prudential regulations during the recent period

of rapid credit growth are vulnerable.

The international financial institution called on the Federal Government

to press ahead with their efforts to address governance problems and

resolve the intervened banks.

It observed that a robust financial stability framework will be important

for the sustained development of the financial sector and lauded the

improvements already in train, including steps to improve the

credibility of information on bank balance sheets and to establish a

macro prudential unit within the Central Bank.

IMF, therefore, emphasised the urgency of implementing the

framework for risk-based and consolidated supervision.

It will also be important to develop a clear framework for dealing with

bank failures, and to strengthen cross-border supervisory

arrangements in view of the rapid expansion of Nigerian banks across

borders.

The Fund commended the proposed overhaul of the framework for the

oil and gas sector, noting its critical importance from a macroeconomic

perspective, throwing its weight behind the Federal Governments goals

of improving governance, enhancing transparency, and creating an

efficient fiscal regime that remains attractive to investors.

32


33/79

Achieving these improvements will require further detailed quantitative

analysis and careful design of transitional arrangements. In parallel

with energy reform, directors welcomed the authorities emphasis on

structural reforms aimed at diversifying the economy and strengthening

infrastructure, it stated.

It agreed that the growth outlook warrants a supportive fiscal stance,

while recognising that financing and administrative capacity constraints

limit the scope for such support.

The Fund, therefore, welcomed the authorities prudent approach to

fiscal policy, and its focus on actions to improve budget execution and

enhance public financial management as well as to increase fiscal

space. Building on past success with the oil-price-based fiscal rule,

fiscal policy over the medium term will need to be more consistently

counter-cyclical in order to neutralise the macroeconomic impact of

swings in oil prices and support private sector-led growth.

It noted that reforms initiated earlier this decade have done much to

soften the impact of the global financial crisis on the nations economy.

The substantial cushion of oil savings and foreign reserves built up

when oil prices were surging, together with bank consolidation and

recapitalization, has enabled policy makers to manage the crisis fallout

from a position of strength. The near-term outlook is nevertheless

challenging and highly dependent on developments in oil prices.

33


34/79

The authorities commitment to a strong macroeconomic and financial

policy framework that can support an early recovery and lay the basis

for the successful implementation of Nigerias Vision 2020 development

plan is welcomed.

2.2 Monetary policy management

Monetary and financial policies are geared towards providing a sound

and stable financial environment that is conducive for the attainment of

both macroeconomic stability and growth.

The Central Bank of Nigeria (CBN) as the apex financial institution, has

the responsibility for the design and implementation of monetary and

financial policies, as well as the regulation and supervision of the

nations financial policies.

The latter function is, however, carried out in collaboration with other

key financial regulatory agencies of the Federal Government.

To appreciate the mechanism for managing the monetary and financial

system, it is pertinent to understand why the authorities pay so much

attention to a sound and stable financial system, and why attempts are

usually made to strike a balance between the growth of monetary

aggregates and macroeconomic stability. A sound and efficient financial

34


35/79

system provides a medium for financial intermediation to take place

and for resources to be deployed efficiently for greater productivity.

In the conduct of monetary policy, the authorities focus on controlling

the growth of money because empirical evidence suggests that

excessive monetary growth leads to an unstable macroeconomic

environment with its attendant adverse consequences for economic

activities. Thus, central banks deliberately strive to control the rate of

growth of money supply in order to influence key macro variables and

economic activities in general, in the desired direction.

This implies that, there is an optimal rate of monetary growth that

would foster exchange rate and price stability, and savings and

investment that are consistent with a given output growth. Thus, it is

highly desirable to exercise appropriate control, not only over the

growth of monetary aggregates, but also over the financial sector

through which the monetary policy measures are transmitted to the

real sector of the economy.

Basically, monetary management deals with the control of the money

stock (or liquidity) and, therefore, interest rates, in order to influence

such macroeconomic variables as domestic prices, employment,

balance of payments and aggregate output in the desired direction.

There is no standard or ideal structure of monetary policy targets and

instruments. The structure varies from country to country, depending

on the size and stage of development of the financial market, and for

35


36/79

any one country, the optimal targets and structure change over time.

Where the financial environment is under-developed, the instruments

of monetary management tend to be limited largely to direct measures,

such as administered interest rates regimes, directed credit, and

mandatory guidelines to banks. Market-based instruments, on the other

hand, usually work best in economies where the financial market is

developed and the real sector is responsive to changes in monetary

policy stance.

The institutional framework for monetary and financial policies

management is usually provided by the law, which defines the

relationship between the central bank and its stakeholders. Also, since

monetary and financial policies are part of the overall national

economic policy, efforts are normally made to reconcile and harmonise

them with the various policies of government to ensure consistency and

effectiveness.

In Nigeria, monetary and financial policies are carried out by the

Central Bank of Nigeria in collaboration with the other relevant

regulatory agencies of the government. However, the instrument

autonomy granted to the bank in 1998 insulates it from undue political

interference in its conduct of monetary and financial policies and,

36


37/79

thereby, enable it to act more pro-actively and promptly in its policy

responses to changes in economic conditions.

As you may recall, the CBN adopted the indirect techniques of

monetary control in 1993 with reliance on the use of market-based

instruments, such as, Open Market Operations, complemented by

reserve requirements and discount window operations. In addition,

there was significant deregulation of financial activities, as the

operation of the techniques of indirect monetary control requires a

deregulated, competitive and sound money market.

Other measures were also taken to strengthen the legal and

institutional framework, as well as check excess liquidity in the system

and foster prudential regulation.

Specifically, some of these measures included regular review of the

minimum paid-up capital requirement for bank; issuance of prudential

guidelines on income recognition and provisioning for non-performing

loans to enhance standardization and improve the quality of financial

reporting; measures to deal with technically insolvent and distressed

banks; and the improvement of regulatory and supervisory framework

for banks and other financial institutions.

37


38/79

Experience shows that monetary policy and banking activities have

strong links. Monetary policy is implemented through the banking

system and influences the activities of banks and other financial

institutions and vice versa. Thus, while some policy measures are

designed to achieve appropriate growth of money stock, others are

taken to foster safe and sound financial system.

As you are all aware, the CBN issues its approved monetary and

financial policies in the form of "Monetary, Credit, Foreign Trade and

Exchange Policy Guidelines". The guidelines do not only prescribe what

the banks would do in order to foster a sound financial system and

enhance macroeconomic stability, but also prescribe the penalties for

default.

Furthermore, the effects of the policy measures on the movement of

money stock, and the health of the banks are regularly reviewed while

the overall impact of policy on the economy is also appraised. This

exercise assists the CBN to determine whether to continue with the

existing measures or to initiate a review of the policy package, either to

change the direction or to fine-tune existing policies.

38


39/79

Monetary and financial policy outcomes in recent years, have been

influenced largely by the surge in banking system liquidity, resulting in

excessive growth in monetary aggregates vis--vis programme targets.

You will recall that excess liquidity persisted in year 2000, especially as

a result of the lagged effect of the CBN financial of the huge fiscal

deficit in the first half of 1999. This situation was further compounded

by the substantial monetisation of enhanced foreign exchange receipts

and the transfer of most government and parastatal accounts to

commercial and merchant banks during the year.

These developments, coupled with the unprecedented surge in foreign

exchange demand, threatened monetary and exchange rate stability in

year 2000. Also, the wide spread between bank deposit and lending

rates was a major concern to the bank.

The CBN's policy responses to these developments during the year

were guided by the desire to keep inflation within a single digit level,

maintain interest rates at a level that would encourage productive

borrowing/investment, as well as improve overall confidence in the

financial system. In addition, the bank remained committed to

nurturing a more competitive and efficient financial environment,

guided by market criteria, and enhancing the effectiveness of the

monetary management process.

39


40/79

In continuation of the distress resolution efforts, three banks recently

had their licenses revoked and were transferred to the Nigeria Deposit

Insurance Corporation (NDIC) for eventual liquidation. Perhaps, I

should take this opportunity to stress that efforts would be sustained in

2001 to address any symptom of distress in the system in a timely and

decisive manner.

In the spirit of greater transparency in the conduct of monetary and

financial policies, which has become the norm globally, the bank has

also established a Monetary Policy Forum where key government

officials, financial market operators, academia, as well as other

stakeholders in the private and public sectors of the economy, will be

invited from time to time to brainstorm on major monetary and

financial policy issues.

This new initiative is designed to enhance the transparency of monetary

and financial policy process in Nigeria. Increased transparency in the

manner we envisage, would help to clarify long-term policy objectives,

improve the workings of financial markets, enhance the credibility and

accountability of the Central Bank of Nigeria, as well as work to

strengthen the effectiveness of monetary and financial policies.

40


41/79

The CBN GOVERNOR SAID-I have sought to review some conceptual

issues in monetary and financial policies management with a view to

putting our discussion in proper perspective. I have also tried to

examine the policy outcomes in recent years and observed that a

number of measures were adopted since 1990 to strengthen the

financial system. In this regard, I should stress that the central bank

will continue to play its statutory role in ensuring monetary stability

and enhancing the health and efficiency of the financial services

industry.

2.3 What is Monetary Policy?

Monetary policy refers to that 0policy measure or action

undertaken by the government in order to achieve her economic

objectives using the monetary instruments of control over bank

lending and the rate of interest.

It is governments deliberate attempt to influence aggregate

demand in an economy by regulating the cost and availability of

credit.

The government can influence both the cost and availability of

credit by following measures designed to affect the coming's

supply oif money these include open market operations, special

41


42/79

deposits direct control over lending by banks and other Financial

institutions, and various forms go requests.

Anyanwu (1993) defines monetary policy as a policy designed to

affects the level a aggregate demand through the supply of

money, cost of money and availability of credit.

From the above, it can be seen that monetary policy is concerned

with the regulation of the volume of money in circulation at any

pint in time.

2.4 EXPANSIONARY MONETARY POLICY

Monetary policy is expansionary if it seeks to increase the volume

of money supply in he economy through changes in interest rate

and reserve ratios.

Jhingan (1983), defines expansionary monetary policy as that

which ease the credit market conditions and leads to an upward

shift in aggregate demand in an economy

42


43/79

An expansionary (or easy) monetary policy is used to overcome a

recession or a depression or a deflationary gap.

Bornbusch (1993) argued that when there is a fall in consumer

demand for goods and services, and in business demand for

investment goods, a deflationary gap emerges.

He further say that for this purpose, the Central Bank purchases

government securities in the open market, lowers the reserve

requirements of member banks, lowers the discount rate and

encourages consumer and business credit through selecting credit

measure.

By such measures as enumerated above, the Central Banks

decreases the cost and availability of credit in the money market,

and improves the economy.

2.5 RESTRICTIVE MONETARY POLICY

Monetary policy is a major economic stabilisation weapon which

involves measures designed to regulate and control the volume,

cost availability and direction of money and credit in an economy

to achieve some specified macro economy policy objectives.

43


44/79

This is to say that monetary policy is a deliberate effort by the

monetary authorities (Central Bank) to control the supply and

credit conditions fro the purpose of achieving certain broad

economic objective

In the words of Olajide (1976), Monetary policy is restrictive if it

is designed to curtail; aggregate demand in an economy".

He argued further that monetary policy is used to overcome an

inflationary gap. The economy experiences inflationary pressures

due to rising consumers' demand for goods and services and

there is also boom in business investment.

Abdulahi (1998 ), is in agreement with the view of Olajide

(1976) when he said that the Central Bank embarks on a

restrictive monetary policy in order to lower aggregate

consumption and investment by increasing the cost and

availability of credit.

It might do so, he argued further, by selling government

securities in the open market, by raising the reserve

requirements of member banks, by raing the discount rather and

controlling consumer and business credit through selective

measures.

44


45/79

By such measure as enumerated above, the central Bank of

Nigeria (CBN) increase the cost and reduces availability of credit

in the money market and thereby controls inflationary pressures

in the economy.

2.6 ADMINISTRATION OF MONETARY POLICY IN NIGERIA

In Nigeria, the administration/implementation of monetary policy

measures is done by the central bank of Nigeria (CBN), with

some degree of political / government interference in some

cases. In some other countries such as the United state of

America (U.S.A), the Federal Reserve System administers

monetary policy with minimum (relative) government

interference.

In Nigeria, before 1986, the central Bank of Nigeria (CBN) was

empowered to carry out monetary policy formulation and

implementation in consultation with the Federal Ministry of

Finance. By then where disagreement arose as to either what the

contents of the policy were to be, or the "modus operandi" of

pushing it through reference was being made to the Federal

executive council which was the fianl arbiter by than.

However, the Central Bank of Nigeria was made fully autonomous

thereafter.

45


46/79

2.7 OBJECTIVE & ROLES OF MONETARY

POLICY IN A DEVELOPING ECONOMY

The objectives of monetary policy refer to the Ultimate macroeconomic

goals which can change from time to time defending on the economic

fortunes of a particular country.

Generally, and according to Okafor (1992), such objective or roles of

monetary policy include.

(i) Maintenance of relative stability in domestic prices.

(ii) Attainment of a high rate of, or full employment.

(iii) Achievement of a rapid, high and sustainable economic

growth.

(iv) Maintenance of Balance of payments (BoPs) equilibrium.

(v) Achievement of a stable exchange rate system within the

economy

2.8 CONFLICTS IN THE ACHIEVEMENT OF MONETARY POLICY

OBJECTIVE

Indeed the objectives of monetary policy do conflict or are

incompatible in some case that is to say that the attainment of

46


47/79

one may preclude the attainment of another or others. In other

words tarde-off do exist in het attainment of policy objectives.

According to Cuberton (1961), as cited in a folabi (1995), there

are two types of conflicts in the attainment of monetary policy

objectives. These according to line, include

(a) Necessary conflict

(b) Policy conflict

2.8.1NECESSARY CONFLICT

A necessary conflict exist as if the attainment of one objective

precludes the attainment of the other. That is to say that the

objectives are inherently incompatible, fro example, if the Phillips

Aurice is accepted, at least in the short run, improvement in

employment may only be achieved at the cost of additional

inflation and Vice Versa.

It is perhaps on the above ground that Adejuge (1995) argued

that full employment may conflict with rapid economic growth

which is dependent on the acceptance of innovation and changes,

47


48/79

if Maintenance of full employment encourages reliance on the

status quo.

2.8.2POLICY CONFLICT

According to Culberton (1961), as cited in Afolabic (1995), a

policy conflict arises when monetary policy has difficulty in

pursuing both goals Simultaneously or when the government

takes measures that will jeopardise the simultaneous

achievement of the objectives.

He argued further that are easy monetary policy designed to

stimulate economic growth will lower the rate of interest and

may generate higher inflation if the growth is not sufficient

enough to inhibit it

It follows therefore, that in a situation where the economy is

experiencing inflation and show pace of economic growth, a tight

(Restrictive) monetary policy (to fight inflation) will reduce

investment and growth even further.

48


49/79

2.8.3CONFLICT RESOLUTION

In the event that monetary policy objectives are not mutually

attainable, a trade-off among them must be considered as a way

out while each objective is ranked with respect to its relation

importance. This is why Ajayi et all (1980), opined that the

ranking has to bwe the responsibility of monetary authorities

(the Central Bank) and the government, based on the state of the

economy

2.9 LIMITATIONS OF MONETARY POLICY IN LESS

DEVERLOPED COUNTRIES (LDCs).

Despite the laudable objectives of monetary policy, experience

reveals that in underdeveloped countries including Nigeria,

monetary policy plays a limited role,

some argument have been put forward in support of the above

view.

According to Thingan (1983), the limitations of monetary policy in

his developed countries are due to the underlisted factors:

49


50/79

(i) Large Non-monetised Sector - Thingan (1983),

maintains that there is a large non-monetised sector in the

economies of developing countries which hinders the

success of monetary policy. He argued further that in the rural

areas where barter are still in exisstence, hence monetary

policy fails to influecnec this large segment of the

economy.

(ii) Undeveloped money and capital markets: The money

and capital market are undeveloped. These markets, in

hte views of Thingan, lacle in bills, storks, and shares,

which limit the success of monetary policy

(iii) Large Number of NBFLs:

Non-Bank Financial intermediaries like the commercial Banks,

operate on a large scale in the LDCs, but they are not under the

control of the monetary authority. This factor, he argued

further, limits the effectiveness of monetary policy in

these countries.

50


51/79

(iv) High Liquidity:

The majority of commercial Banks possess high Liquidity so that

they are not influenced by the credit policy less

effective.

(v) Existence of Foreign Banks:

In almost all less developed countries of the world, there exist

foreign owned commercial banks. These foreign Banks also

render monetary policy ineffective by selling foreign assets and

drowning money from their head offices, even when the

central bank of hte country they are operating is pursuing a tight

monetary policy.

(vi) Small Bank Money:

Another reason advanced for the less effectiveness of monetary

policy in Undeveloped countries is the size of the money that is

in the banking system in comparison to money held outside the

banking system. Experience has shown that in most.

underdeveloped countries a very small proportion of the total

money supply constitutes the bank money, while a higher

proportion are held outside the banking system. This

51


52/79

situation makes the Central Bank to be unable to control credit

effectively.

(vii) Money not Deposited with the Banks:

The "money Bags" (excessively rich persons) which exit in

virtually all undeveloped countries, do not deposit their money

with banks but prefer to use it in buying jewellery, gold, real

estate, in speculation, in consumption, etc. Such activities

encourage inflationary pressure because they lie outside the

control of the monetary authority.

On account of these limitations of monetary policy in an under-

developed country, contemporary economists advocate the use

of fiscal policy along with monetary policy.

52


53/79

CHAPTER THREE

RESEARCH METHODOLOGY AND DESIGN

3.1 INTRODUCTION

It is customary to design and spelt out the method by which an

intended research work is to be conducted by the researcher.

The research design was aimed at enhancing the effectiveness of

the study thus paving way for a meaningful and systematic

approach to the study. it is on this ground that this chapter had

being devoted to the explanation of the research procedures

method of data collection sources of data collected, and the

instruments employed.

The chapter also presents the methods used in analysing the data

collected, the statistic used for testing the research hypotheses

and the decision criteria for validation (acceptance or rejection)of

the hypotheses.

3.2 RESEARCH METHODOLOGY

There are different approaches or methods often adopted in

conducting a research. Some of these methods include

53


54/79

experimental method, econometric method, comparative, etc. It

is worthy to note here that the methodology to be adopted in the

collection of presentation and in analysing a research data

depends on the objectives of the study.

In this chapter, the methodology employed in this study, were

meticulously explained in the various sub sections that made up

this chapter. The main objective of this study has been to

examine the relative efficiency of monetary policy in the control

of inflation in the Nigeria economy between 1979 -2008.

3.3 RESEARCH DESIGN

The study is empirical in nature and falls within the realms of

macro economic problems This situation made the use of

historical dated inevitable. The techniques adopted in the

research involved a combination of statistical, mathematical and

econometric techniques. specifically the researcher preferred the

use of econometric model - ordinary least squares (OLS

estimation technique in estimating the impact of the independent

variables Government expenditure and money supply on the

dependent variable (Inflation). That is to say that the model

aimed at estimating and evaluating the extent to which the

repressors can explain changes in the regress and (Inflation).

54


55/79

The use of historical data for the study, was informed by the need

to make use of authenticated and authoritative data computed

from published materials to give the study a more objective

approach.

The researcher decided to use ordinary least square (OLS

technique in the estimation of te parameters of the model

owing to its relative simplicity, the production of fairly satisfactory

results, as well as being widely used by economists in study of

relationships between or among economic phenomena.

3.4 SOURCES OF DATA

The source of the data collected and used in the course of this

study were mainly secondary sources among whom is the

central bank of Nigeria's statistical bulletin, etc.

3.5 SECONDARY DATA

The secondary data were gathered from a variety of sources such

as text books, journals, magazines, papers delivered at symposia

and seminars by eminent scholars, statistical and economic

55


56/79

bulletins, as well as other related sources.

The researcher relied heavily on authoritative data published by

notable organisations such as the Central Bank of Nigeria (CBN),

Federal Ministry of Finance & Economic Development and the

federal office of statistics (FOS).Others were the National

Center of for Economic Management and Administration

(NCEMA).

In searching for the relevant and necessary data needed for the

research the researcher also embarked on library research.

3.6 POPULATION DESCRIPTION

The population under study included the value of government

expenditure , money supply and inflation rates in Nigeria.

3.7 SAMPLE SIZE

For every variable in the study a total of twenty (20) samples

observations were used. The sample used in the study covered

the rate of inflation government expenditure and money supply in

56


57/79

the Nigerian economic between 1979 - 2008.

3.8 INSTRUMENTS FOR DATA COLLECTION

Due to the macro nature of the problem under investigation. The

use of the basic or traditional research instruments of

questionnaire, interviews, observations, etc were precluded.

However, the research relied on published (secondary) materials

from where the data considered necessary for the purpose of this

study, were completed and for extracted. The university library

also constituted a major source for data collected.

3.9 METHODS OF DATA ANALYSIS

The methods employed in the analysis of data collected were

statistical and econometric methods.

3.10 MODEL SPECIFICATION AND ESTIMATATION TECHNIQUES

The model specified for the explanation and the analysis of the

phenomena under study , showed the rate of inflation as a

function of government expenditure and money supply in Nigeria

57


58/79

economic, as shown below :

INF = F(Government Expenditure, money supply)

INF = F(G EXP, Ms) __________ (1)

Linearising equation one (1) above it becomes

INF = ao + a1 GEXP + a2 Ms + u_______ (2)

DEFINITION OF VARIABLES

GEXP = Government Expenditure _ independent or exogenous

variable in the model.

Ms = money supply - an independent or exogenious variable in

the model.

INF = The Rate of Inflation - a dependent or endogenous variable

in the model.

U = The stochastic (error) term.

a0, a1 and a2 = parameters to be estimated.

58


59/79

Equation four (4) above deficts inflation rate in the Nigerian

economy as being a function of, or depending on government

expenditure and money supply. The verification of the precise

extent to which each of these explanatory variables can

explain variation in the dependent variable (INF) , is a major

focus of this study, and falls within the critical area of this

study.

3.11 STATISTICS FOR TESTING HYPOTHESES

In testing the hypotheses earlier formulated in the course of this

study, the student 't' test was used in analysing and testing the

statistical significance of each of the parameters in the model

specified for this study. The 't' test involves the comparison of the

observed of 't' with the computed (Tabular) value in order to

determine the statistical significance or otherwise of the variable

to which the 't' value relates. This comparison is based on

the assumption that the null hypothesis is true. The value of the

't' statistic is given as

t* =bi

se (bi)

where

59


60/79

t* = the observed 't' value

bi = the estimated value of the parameters

se = standard error of the estimate

i = 0,1,2,3 - - - - - - - - n

In caring out this test the researcher used 95% (Ninety five

percent) confidence level, that is 5% level of significance at n-k

degrees of freedom (d.f.) .

DECISION RULE FOR VALIDATION OF HYPOTHESES

If the value of the observed 't' (T- Ratio) is greater than the value

of the tabular 't' (t - critical) at n _ k degree of freedom, at 0.05

level of significance (95% confidence level ) then the null

hypothesis (Ho) stands rejected and the alternative hypothesis

( H1) accepted.

ie If t* bi > tcri(0.025) at n _ k df

Reject Null Hypothesis (Ho)

If t*bi


61/79

Accept the Null Hypothesis (Ho)

and Reject (Hi).

(ii)THE COEFFICIENT OF DETERMINATION (R2)

This was also used in assessing the explanatory ability of the

model specified for the for this study. The R2 shows the

percentage of total variation in the dependent variable (INF) that

has being explained by the independent variables (Government

expenditure, money supply) taking together. The use of the

global test was test (R2), along with the parametric test was to

augment the parametric test.

R2 = Rss

Tss

where R2 = the Coefficient of determination

Rss = Regression sum of squares

Tss = Total sum of squares

CHAPTER FOUR

61


62/79

DATA PRESENTATION, ANALYSIS OF RSULTS

AND INTERPRETATION

4.1 INTRODUCTION

The objective of this chapter were to present the data collected in the

course of this study analyse and interpret the results emanating from

the statistical and other tests carried out on the data, as well as

discussing the findings. The principal objective of this chapter was also

the validation (testing with a view to accepting or rejecting) of the

research hypotheses earlier formulated in chapter one (1) of this study.

These formed the bases of this study.

The purpose of this research had been the investigation of the relative

efficacy of the use of monetary policy in the control of inflation in the

Nigerian economy between 1979 and 1998 Vis--vis the use of fiscal

policy. In furthermore of the objective of this study, data in respect of

inflation rates, money supply and government expenditure from 1979-

1998 were collected, as presented in Appendix one (1) annexed to this

report.

4.2 PRESENTATION AND ANALYSIS OF DATA

62


63/79

The data so collected, for the purpose of these research were as

presented, in the relevant tables in the appendices to this report.

The researcher built up a model for the results of the statistical analysis

carried out on the data, were also presented in appendix two (2) of this

report. The Regression Reports of the model used fro this study ere as

set out hereunder.

Model:

Y = ao + a1X1 + a2X2 + U

Where:

Y = Inflation Rate in the Nigeria Economy

X 1 = Government Expenditure

X2 = Money supply

U = Error term

ao, a, and a2 = parameters estimated.

Reports:

Y = 18.98043 + -0.00024GEXP + 0.0023/ Ms

T* = (4.927063) (-1.18226601) (1.408537)

R2 = 0.143847, R-2 = 0.82201923

63


64/79

F (2,17) =2.184209, W- statistic = 0.8939

The above estimated parameters in the above model portray the

relationship between inflation (Y) as a defended variable and

Government expenditure and money supply in Nigeria during the period

1979-1998. In the model above, the autonomous interest (ao) of

18.98043 which is independent of government expenditure and money

supply, shows that even if government expenditure and money supply

were Zero, there will still be an increase of 18.98043 in the rate of

inflation in the economy.

The slope of he estimated regression line (a1) is -0.00024. this

indicates that there is no positive correction between Government

expenditure and the rate of inflation in the Nigerian economy.

The money supply coefficient of 0.00231 indicates a positive but very

weak and insignificant relationship between money supply and the rate

of inflation in the Nigerian economy.

4.3 TESTING THE HYPOTHESES

In order to pursue the objective of this study, which has been the

verification of the roles or relative efficacy of monetary policy, in the

central of inflation in the Nigerian economy between 1979 1998, this

64


65/79

section of the research report was devoted to the testing of the

research hypotheses earlier stated in chapter one (1) of this study.

The statistic or tools used in testing the research hypotheses was the

student t-ratio the procedures and the rules governing the tests or

validation of hypotheses using the t statistic, were earlier stated in

chapter three (3) of this study.

HYPOTHESIS ONE (1):

NULL HYPOTHESIS (HO)

Ho: a1 = O: inflation rate in Nigeria is not significantly influenced

by variation in total government expenditure.

ALTERNATIVE HYPOTHESIS (H1)

H1,: a, = O inflation rate in Nigeria is significantly influenced by

variation in total government expenditure.

DECISION RULE:

If the value of the observed t (t-ratio) is greater than the value of the

tabular t (t critical) at n-k degrees of freedom, at 0.025 level of

significance (95% confidence level), then the null hypothesis (Ho)

stands rejected and the alternative hypothesis (H1) accepted.

This is the say:

If t* bi > teri (0.025) at n k d.f.

Reject null Hypothesis (Ho).

But if t* bi < teri (0.025) at n-k d.f.

65


66/79

Accept the null hypothesis (Ho) and reject (H1).

RESULT :

The result showed that t* (a1) is 1.18223 and teri (0.025) at 17 d.f is

2.110. based on the validation rule governing this test, the null

hypothesis (Ho) is accepted thus concluding that changes in the rate of

inflation in the Nigerian economy is not significantly influenced by

changes I the level of government expenditure.

HYPOTHESIS TWO (2)

NULL HYPOTHESIS (Ho):

Ho: a2 = 0: change in the level of money supply do not have a

significant influence on the rate of inflations in Nigeria,

ALTERNATIVE HYPOTHESIS

H1: a2 = O: change in the level of money supply do have asignificant

influence on the rate of influence in Nigeria.

DECISION RULE:

If the value of the observed t (t-ratio) is greater than the value of the

tabular t (t-critical) at n-k degree of freedom (d.f.), at 0.025 level of

significance (95% confidence level), the null hypothesis (Ho) stands

rejected and the alternative hypothesis (H1) accepted.

That is to say that:

66


67/79

If t* bi > teri (0.025) at n-k d.f.

Reject the null hypotheis (HO)

But if t* bi < tcri (0.025) at n-k d.f,

Accept the mill hypothesis and (HO) and reject the atternative hypothsis

(HI)

RESULT

The result should that t* (a2) is i.408536 while tori (0.025) at 17 d.f, is

2.110. from the statistics given above, toh < tori since 1.408536

transparency in monetary and financial policies

Documents