Monetary Policy Measure As Instruments Of Economic Stabilization

1.0 INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Generally monetary control measure include those devices that influence the overall supply, cost and availability of money and credit. This is the responsibility of the monetary authority which comprises the central bank and the federal government in Nigeria, the central bank exercises primary responsibilities for initiating, articulating, implementing and appraising such policies. The banks proposal are subject to ratification by the federal government.
Monetary policy measures are monetary management techniques put in place by the government through the central bank to control money stock that is supply of money in order to influence broad macro-economic objectives which include price stability high level of employment, sustainable economic growth and a balance of payment equilibrium. These broad objectives are achieved through the use of appropriate instruments, depending on which objective the policy formulated want to achieve and on the level of development of the economy.
In the application of monetary policy measures as instruments of stabilization of the economy, here these instruments are determined by the nature of the problems to be solved and by the environment in which these problems exist. There are broadly two categories of hese instrument viz, quantitative or indirect controls and selective (qualitative or direct) controls. Indirect instruments are usually used in market based economic where the quantity of money stock can be affected through the relationship between money supply and reserve money as well as the ability of the monetary authority to influence the creation of reserves. The reserves and hence, money supply can be affected through the following ways:
i. Change in reserves deposit ratio
ii. Change in discount rate
iii. Interest rate change and
iv. Engaging in open market operation (OMO)
In an under-developed financial environment, the instruments of monetary and credit targets at desired levels. The major direct control measures is direct interest regulation. Hence the regulatory authorities interpose explicit limitations on dealings between borrowers and creditors.
These instruments of monetary policy are applied in the achievement of various objectives However, all such objectives are in consonance with the broad objectives of the 1st National Rolling plan (1990-1992) which are:
The consolidation of the achievement made so far in the implementation of the structural adjustment programme (SAP). The plan is also to deal with pressing problems of inflation, unemployment, the sluggish performance of the productive sectors particularly manufacturing and the inadequate availability of foreign exchange with the aim of achieving of non – oil export. Other socio economic problems to be addressed by the plan include the high growth rate of population, threats to the environment and the menace of anti-social behaviour such as aimed robbery, and other junile delinquency. These objectives viz, a highly level of employment, price stability, a sustainable level of economic growth and balance of payment equilibrium.
However, the effectiveness of monetary policy measures against which background of objective were formulated has raised serious doubts as o the continuous use of these policy measures. It is in the light of the above theoretical / background that the author wishes to carry out a study of monetary policy measures as instruments of economic stabilization.

1.2 STATEMENT OF THE PROBLEM
Over the years, so many instruments of monetary policy have been in vague not to gear-up the level of investment, but unemployment, price level instability, lack of sustainable economic growth, balance of payment disquilibrium, inability to mobilize domestic savings and unsatisfactory expansion of domestic output. These have consistently and persistently done severe damage to the Nigerian economy unabated.
It is against this background that the problems of this study have been identified and they are as follows:
a. Are monetary policy measures effective as instruments of economic stabilization?
b. Have there monetary policy to achieve desired objectives and what has been the outcome?
c. Is the implementation of monetary policy ideal?
d. What factors hinder the full attainment of the monetary policy objectives?
e. Could there be any remedy to these problems
f. Are there conflicts or relationship between monetary and fiscal policy measures?

1.3 STATEMENT OF OBJECTIVES
The objectives of this paper are:
i. To present and analyse the various monetary objectives and isntruments for the period.
ii. To demonstrate the general trend in monetary policy as a tool for achieving economic stabilization in Nigeria
iii. To ascertain the level of success of policy measures against desired objectives.
iv. To identify the factors that tend to hinder the full attainment of the derived objectives
v. Finally to recommend the appropriate policy measures for the achievement of specific objectives as well as recommend solutions to problems that hinders the full attainment of such objectives.

1.4 RESEARCH HYPOTHESIS
Hypothesis are research solutions o problems, which are in essence quests or unches that are subjected to some verification or test. By the above ascertain the researcher therefore deemed it necessary to establish the following hypothesis, that:
1. An increase in money supply earns increase in the level of inflation
2. A reduction in money supply will lead to a current account surplus in the balance of payments.
3. An increase in net domestic credit will lead to an increase in GP growth rate.

1.5 SIGNIFICANCE OF THE STUDY
This research provides an insight into monetary policy measures as instruments of economic stabilization. It will therefore be of invaluable use to the following people.
To students, it will provide a complement to the few existing tests on money policy and economic stabilization.
To policy makers, this study will be of immense value because it:
i. Highlights the mechanism for the operation of monetary policy against achieving set goals and objectives.
ii. Examines the areas of conflict between monetary and fiscal policies.
iii. Analyses the problems facing the full implementation of monetary policy measures and
iv. Suggestive solutions to such identified problems, as such policy makers will find its recommendations invaluable in formulating new and ideal measures for the achievement of economic stability.
Bankers will also find this work a useful tool in analyzing the effects of government actions on their activities and whether these actions are, on the whole favourable in investors are not left out, this work will serve as a guide on the effects of monetary policy on various sector of the economy, in which their funds can be invested and lastly, the ordinary reader will find this work as an eye opener and a valuable store of knowledge.

1.6 SCOPE AND LIMITATION OF THE STUDY
The limitation of this study are:
The restriction of data pertaining to sectors of the economy. It therefore become difficult to assess the impact of money policy on such sectors.
The ill defined measurements of economic stability is another limitation to this study. This is as a result of the fact that one economic indicator may fall within the deal range while others do not. Therefore it is difficult to say accurately and conclusively that the economy is stable.
Another limitation is he erratic nature of government in Nigeria, there is a great deal of instability in government, therefore economy policy of which monetary policy is one is never stable. This makes the implementation of monetary policy faulty as policy measures keep charging with the advent of each new government.
The inability of the monetary authority to provide adequate statistic on the performance of monetary policy measures adopted by them is as a result of illegal action of citizens who attempt to thwart the efforts of the monetary authority.

1.7 PROPOSITIONS
The researcher wishes to make the following propositions which will either be substantiated or disproved in the course of this study.
1. That there are conflicts between monetary and fiscal policy actions and that ineffectiveness of the monetary authority has made the attainment of monetary policy objectives, as regards economic stabilization, a goose chase.
2. That monetary policy objectives and ultimately economic stabilization have over the years remained unachieved.
3. That the objectives of monetary policy are achievable given the right political, social and economic environment and using the appropriate instruments at the appropriate time.
NOTE:
1. First Bank Business and Economic report (January, 1990) P.s

1.8 DEFINITION OF TERMS
Monetary policy: instruments of stabilization and economic
development. They are measures, or a combination
of measures designed to influence or regulate the
volume, price and direction of money and credit.
Money stock: The amount of money in circulation at any point in
time. This is variable and could be affected.
Reserve money: This is also known as reserve. It is the amount of
fund a bank is required to maintain in its vaults
Reserve Radio: This is the ratio of the deposit that the banks are
required to maintain with the central bank.
Discount rate; This is the rate at which the central bank makes loans
to the commercial bank as a lender of final or last
resort.
Lender of last resort: This term is used to qualify the central bank.
When banks are cash strapped, it is the central banks
that lends to them when there is no other alternatives.