Impact Of Monetary Policy Instruments On Unemployment In Nigeria

INTRODUCTION

1.1 Background of the Study
 Monetary policy rests on the relationship between the price at which money can be borrowed and the total supply of money in the economy. It is generally referred to as being expansionary or contractionary, where an expansionary policy increases the total supply of money in the economy rapidly, and contractionary policy decreases the total money supply, or increases it slowly. When a central bank embarks on an expansionary monetary policy, it does so to stimulate domestic economy and reduce unemployment, while contractionary policy involves raising interest rates to combat inflation.

According to Adekanye (1986), monetary policy can be described as the various ways by which the Federal Government and the Central Bank of Nigeria (CBN) seek to influence the supply of money and credit as well as their price asindicated by interest rate in order to achieve stated or desired economic goals.

Chukwudire (1993) refers to monetary policy as measures to control the availability, cost and use of money and credit in the economy for the purpose of achieving stated objective. He went further to say that monetary policy covers a broad range of policies and measures which include not only such monetary measures that influence the availability, cost and use of money, but also those non-monetary measures which influence monetary situations. He argued that in so far as these non-monetary measures such as price control, income policies, physical control, budgetary measures that deal with inflation aimed at influencing monetary are involved in monetary policy.

Today, unemployment may be viewed as one of the most intractable problems facing Nigeria since 1960 and climaxing in these millennium years. It has become a cankerworm that is now eating deep into the fabric of the Nigerian economy. The existence of high unemployment in any economy is a source of concern to policy makers as well as the general citizenry. According to Englama (2001), the issue of persistent unemployment is now frightening in Nigeria considering the fact that it is widening poverty, misery, and social unrest, ethnic cum religious crisis, robbery, kidnappings, terrorism and other social vices. These have posed a great challenge to policy makers/planners, human resource experts and persons dealing with unemployment programmes, planning and implementations. 

Monetary policy has a dual mandate of guaranteeing high employment rate and price stability. At one time or another, economic agents around the globe have also tried to use monetary policy to achieve almost every conceivable economic objective with economic growth and low level unemployment often high in the list. As a case in point, Sellon (2004) posited that when the Federal Reserve of the United States raises its target for the federal funds rate, other rates rise, reducing interest-sensitive spending and slowing the economy, and when it is lowered, other rates tend to fall - stimulating spending and spurring economic activity.

 The official unemployment rate steadily increased from 12.3 per cent in 2006 to 23.9 per cent in 2011 (ILO) while the revised rate records shows an increase from 12.3 per cent in 2006 to 19.7 per cent in 2009, but declined to 6.0 per cent in 2011. Between 2013 to first quarter 2014, the unemployment rate rose from 24.7 per cent to 25.1 per cent (ILO), while the revised rate shows a decrease from 10.0 per cent to 7.8 per cent.

The government through the monetary authority promote monetary stability and evolve an efficient and reliable financial system through the application appropriate monetary policy instrument and systemic surveillance. Despite these efforts of government in boosting the performance of financial sector, the sector is still not witnessing significant development in relations to solving the problem of unemployment.

In an effort to encourage employment generation using monetary policy, interest rates were liberalized (deregulated) and were also controlled on several occasions. The failure of these polices and the onward escalation of unemployment problem necessitated the reason for determining the impact of selected monetary policy on unemployment in Nigeria.