In
August 1996, delivering a paper during the meeting of the secretary to the
government of the federation with federal government… “on money supply,
inflation and the National Economy” Ogwuma (1996) maintains that inflationary developments
have obviously had so many negative consequences on the economy. He explained
this by stressing that when inflation increased from 7.4 percent in 1990 to
67.2 percent in 1993, the growth in economic activities reflected in the
movement of the GDP, as it declined from 22.3 percent to 8 percent. These goes
to confirm the emerging consensus that high inflation tend to engender low
economic growth timely.
Udabah (1998) on “The evolution of
the effectiveness of monetary policy in the Nigerian economy” covering the
period of 1995 to 1997 came up with the result that the monetary policy
instruments used by the central bank contributed significantly in achieving
some degree of macroeconomic goal. To always achieve effective result, the
central bank should “fine tune” that instruments.
Samuelson (1967) leading a research
on the theory of stabilization policies deserves much attention in this
research study. His focus was on interest and capital. He established that a
combination of monetary and fiscal policies plays a vital role in not only
stabilizing an economy but determines the rate of capital growth. In the course
of his analysis, Samuelson recommended the adoption of tight fiscal and easy
monetary policies as well as easy fiscal and tight monetary polices for
economic stabilization. However, he cautioned that either of the above is a
function of the economic peculiarities of the country in question. He used
graphical illustration of the two policies.
NOTE: SORRY NO DIAGRAM
In fig (a) and (b) he explains that a
combination of monetary and fiscal policies is the determinations of rate of
capital growth. When capital growth takes place in any economy, the society is
bound to build up quickly and achieve the basis of macroeconomic desires, (like
full employment, increasing productivity and favourable balance of payment).
According to him, by tightening
fiscal and easing monetary policies, the economy attracts full employment of
savings and investments at E0. on the other hand, when the second
economy uses easy fiscal policy (like low taxes) put at par with tight monetary
policy, the resultant effect is a low saving and investment at equilibrium of E1.
Finally, he postulated that low
saving and investment matches with high consumption, which does not augur well
for a smooth growth of the economy. It is important to stress at this juncture
that, whichever angle an economy approaches this policy, two problems are certain
to arise, either inflation or declining productivity.
Odedokwe (1998), studied the impact
of fiscal variables, monetary variables and composition of financial aggregate
on the Nigerian economy, he concluded that monetary and credit policies are
more effective on economic growth performance than fiscal policy.
Paul (2004), further studied the
impact of monetary and fiscal policies along with their implications on the
economic growth performance especially during the periods of inflation and
depression and came up with the following summarized views:
i.
The extreme
Keynesian and monetarist views are partial, one sided and contains half truth.
Both approaches deals with a particular phase of trade cycle in a capitalist
economy.
ii.
Keynesian view is
more suitable. During the phase of depression it is useful in forecasting
changes in income level when the economy is experiencing depression.
iii.
Monetarist view
works in the inflationary phase. It helps in forecasting changes in income
level in inflationary situation.
Finally, he concluded that monetary and fiscal polices
ought to be complementary to each other, each operating in the province in
which it is most effective.
Anderson and Jordan (1968), studied also the empirical
relationship between the measures of fiscal and monetary actions of government
and total spending. These relationship were studied by regressing quarterly
changes in gross national products on quarterly changes in money stock and in
the various measures of fiscal action. Also similar studies were conducted
using the monetary base instead of the money stock. However, the result of
these studies inferred that monetary policy is more dependable in the drive
towards economic stabilization.
Uchedu (1995) investigated the effect of monetary
policy on the performance of commercial banks in Nigeria. He employed a
theoretical framework including port-folio management theory, the statistical
model and production function technique. He developed a modified model to
identify the impact of some selected monetary policy variables on commercial
banks performance in the period (1970-1973). He used the ordinary that square
(OLS) single equation procedure. He found out that interest rate is a major
source of changes in commercial bank’s performance. However, banks reserve was
found to have positive effect on banks profitability while exchange rate had
negative effects on banks profitability.
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