MONEY MARKET EFFICIENCY AND THE DEVELOPMENT OF NIGERIAN FINANCIAL SYSTEM
Autor (i): Asaolu Adeoba Adepoju, PhD; Otekhile Cathy ?Austin, Ing et Ing; Chijioke Nwachukwu, Msc
JEL: M41, M42
Cuvinte cheie: Money Market Efficiency, Money Market, Financial System, Co-integration
Abstract:
This study empirically assesses the effects of money market efficiency on the development of Nigerian Financial system, using annual data collated from 1991 - 2017. The study utilizes money market variables (Interest Rate Spread, Interest Expenses, Loan/loss Provisions) as measures of money market efficiency while real gross domestic product (RGDP) was employed as the control variable. Financial deepening (M2/GDP) was used as proxy for financial system development with the adoption of multivariate OLS analysis for the estimation process, co-integration analysis for long-run relationship and the associated error correction model (ECM) to determine the short-run impact of the variables. The Granger causality test is used to determine the direction of causality among the variables. The study found that there is a significant positive relationship between money market efficiency with reference to interest expense and financial system development both in the short-run and long-run respectively; an indication that high interest expenses remain a major challenge in achieving financial system development in Nigeria. However, we could not establish any significant relationship between financial systems development and other efficiency measures namely interest rate spread, and loan/loss provision. The study recommends that monetary authorities should monitor the activities of banks by ensuring that they are properly run in line with prudential regulations to improve efficiency via reduction in interest expenses, and costs of loan/loss provision. Also, they should build capacities in the real sector of the economy to spur up the real domestic product which is a necessary ingredient for the development of Nigeria’s financial system.
This study empirically assesses the effects of money market efficiency on the development of Nigerian Financial system, using annual data collated from 1991 - 2017. The study utilizes money market variables (Interest Rate Spread, Interest Expenses, Loan/loss Provisions) as measures of money market efficiency while real gross domestic product (RGDP) was employed as the control variable. Financial deepening (M2/GDP) was used as proxy for financial system development with the adoption of multivariate OLS analysis for the estimation process, co-integration analysis for long-run relationship and the associated error correction model (ECM) to determine the short-run impact of the variables. The Granger causality test is used to determine the direction of causality among the variables. The study found that there is a significant positive relationship between money market efficiency with reference to interest expense and financial system development both in the short-run and long-run respectively; an indication that high interest expenses remain a major challenge in achieving financial system development in Nigeria. However, we could not establish any significant relationship between financial systems development and other efficiency measures namely interest rate spread, and loan/loss provision. The study recommends that monetary authorities should monitor the activities of banks by ensuring that they are properly run in line with prudential regulations to improve efficiency via reduction in interest expenses, and costs of loan/loss provision. Also, they should build capacities in the real sector of the economy to spur up the real domestic product which is a necessary ingredient for the development of Nigeria’s financial system.
Articol: Fisier PDF
Copyright © UNIVERSITATEA CONSTANTIN BRANCOVEANU. Toate drepturile rezervate.