Economic and Financial Review


Central Bank of Nigeria


Monetary policy, Asset prices, Interest Rates, Stock market, Bond yields, Nigeria


This paper attempts to contribute to the debate on the linkages between monetary policy and asset prices in the woke of the recent global financial crisis. The study employs vector error correction (VEC) mode! on Nigerian weekly data from January 2007 to October 2013. A pair-wise granger causality test indicated a unidirectional causality from asset prices to monetary policy. Exchange rate at lag one was negatively related to the All Share Index. suggesting that exchange rate appreciation is likely to lead to excessive appreciation in asset prices. The results further indicated a positive relationship between financial system stability and asset prices. The variance decomposition indicated that monetary policy rate (MPR) accounted for the largest variation in AS! followed by exchange rate and financial system instability. A key conclusion was thot the monetary policy rate had significant impact on asset prices. Notably, the CBN policy rate monetary policy influenced asset prices significantly as from the fourth week for both the All Share index returns (ASIr) and the NSE 30 return. The results also showed that the predominant sources of asset price volatility were due largely to interest rate shocks, exchange rate shocks and financial system stability. Thus, the authorities should as a matter of priority, continue to provide forward guidance for anchor investors’ expectations and the direction of the market as well as put downward pressure and help improve broader financial conditions.

Author Bio

The authors are staff of the Monetary policy Department, Central bank of Nigeria.

Publication Title

CBN Economic and Financial Review





Recommended Citation

Tule, M. K., Ogiji, P. Okorie, G. & Mbaka, D. (2015). Monetary policy and asset prices in Nigeria, CBN Economic and Financial Review. 52(4), 79-110.



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