CBN Journal of Applied Statistics (JAS)
Keywords
Interest rate, monetary policy rate, nonlinear threshold regression
Abstract
This study examines the effect of monetary policy rate (MPR) on market interest rates in Nigeria. For parsimony, we develop two indexes called the short-term interest rate (SINT) and Lending interest rate (LINT) to represent deposit and lending rates respectively. The nonlinear autoregressive distributed lag (NARDL) and threshold regression models are adopted. The study uses monthly data from 2002:M1 to 2019:M12. The results of the threshold regression model indicate that the degree of the effect of MPR on SINT and LINT above the estimated threshold of 11 and 13 percent respectively is greater and significant than if MPR were to be below the threshold. Moreover, estimates from the nonlinear ARDL model show that increasing MPR induces a positive effect on short-term and lending interest rates, while a negative effect holds if MPR is decreased. For LINT, the magnitude of the negative effect is little, while for SINT, the effect is statistically insignificant. This depicts the downward stickiness of prices, which supports the argument that the ineffectiveness of MPR only holds when it is adjusted downward. We recommend that the monetary authority should focus on reforming the banking system in ways that remove downward rigidities in the effect of MPR on interest rates in order to engender greater efficiency of monetary policy.
Issue
1
Volume
13
First Page
93
Last Page
121
Recommended Citation
Awopegba, Oluwafemi E.; Afolabi, Joseph O.; Adeoye, Lydia T.; and Akpokodje, Godwin O.
(2022)
"Effect of Monetary Policy Rate on Market Interest Rates in Nigeria: A Threshold and NARDL Approach,"
CBN Journal of Applied Statistics (JAS): Vol. 13:
No.
1, Article 6.
Available at:
https://dc.cbn.gov.ng/jas/vol13/iss1/6
Included in
Applied Statistics Commons, Artificial Intelligence and Robotics Commons, Behavioral Economics Commons, Business Commons, Categorical Data Analysis Commons, Databases and Information Systems Commons, Data Science Commons, Design of Experiments and Sample Surveys Commons, Development Studies Commons, Econometrics Commons, Economic Theory Commons, Finance Commons, Food Security Commons, Growth and Development Commons, Income Distribution Commons, Longitudinal Data Analysis and Time Series Commons, Macroeconomics Commons, Multivariate Analysis Commons, Numerical Analysis and Scientific Computing Commons, Other Statistics and Probability Commons, Probability Commons, Social Statistics Commons, Statistical Methodology Commons, Statistical Models Commons, Statistical Theory Commons, Survival Analysis Commons
