Effects of Monetary Policy on Economic Indicators in Rural-Urban Nigeria
Abstract:
Neglecting regional differences in a country with vastly different economic realities like Nigeria can result in a one-sizefits-all approach to macroeconomic policy. This study tackles this overlooked research area by employing a simultaneous Vector Error Correction Model (VECM) that considers the endogeneity of monetary policy. The analysis reveals distinct long-run effects in both urban and rural Nigeria, highlighting the need for tailored policy frameworks. Drawing on Lewis's Dual Economy Models and Place-Based Development Framework, the study establishes a theoretical foundation and incorporates a diverse set of economic indicators. The results indicate that monetary policy impacts unemployment and inflation differently in urban and rural areas. In urban settings, an increase in the Monetary Policy Rate (MPR) leads to higher unemployment but also contributes to inflation. Conversely, rural areas experience stronger inflationary effects and a greater positive impact on unemployment from MPR. The study also identifies a positive long-run relationship between MPR and money supply (M2), suggesting the need for further investigation. Short-run dynamics reveal the speed of adjustment to long-run equilibrium, with implications for policy interventions. The findings underscore the importance of targeted monetary policies, financial inclusion initiatives, and transparent communication in fostering inclusive development.
