THE EFFECT OF MONETARY POLICY ON UNEMPLOYMENT IN NIGERIA OVER THE PERIOD OF 2015 TO 2024

TOPIC IS SUITABLE FOR:
1- Department of Economics

2- Department of Banking and Finance

3- Department of Finance

4- Department of Business Administration

TOPIC: THE EFFECT OF MONETARY POLICY ON UNEMPLOYMENT IN NIGERIA OVER THE PERIOD OF 2015 TO 2024

TABLE OF CONTENT
Abstract

CHAPTER ONE: INTRODUCTION

1.1 Background of the Study

1.2 Statement of the Problem

1.3 Objective of the Study

1.4 Research Questions

1.5 Research Hypothesis

1.6 Significance of the Study

1.7 Scope of the Study

1.9 Definition of Terms

CHAPTER TWO: LITERATURE REVIEW

2.1 Conceptual Framework

2.2 Theoretical Review

2.3 Empirical Literature

2.5 Theoretical Framework

CHAPTER THREE: RESEARCH METHODOLOGY

3.1 introduction

3.2 Design

3.3 Population of the study and sample size

3.4 Instrument for Data collection

3.5 Data source

3.6. Model Specification

3.7. Method of Data analysis

3.8 Justification of Methods and Techniques used

CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS

4.1 Introduction

4.2 Data Analysis

4.3 Summary of Key Findings

CHAPTER FIVE: DISCUSSION, CONCLUSIONS AND RECOMMENDATIONS

5.1 Discussion of Findings

5.2 Summary

5.3 Conclusion

5.4 Recommendations

5.5 Limitations of the Study

5.6 Suggestions for Further Studies

References
Appendix

ABSTRACT
This study investigated"The Impact of Monetary Policy Instruments on Unemployment in Nigeria". Specifically, the study examined the influence of selected monetary policy instruments(Cash Reserve Ratio (CRR), Monetary Policy Rate (MPR), Broad Money Supply (M2), Exchange Rate (EXR), and Liquidity Ratio (LR)) on the unemployment rate in Nigeria over the period 2015 to 2024. The study adopted an ex-post facto research design, utilizing secondary annual time series data obtained from the Central Bank of Nigeria (CBN) and the National Bureau of Statistics (NBS). The population of the study covered Nigeria’s macroeconomic data on unemployment and monetary policy variables, while purposive sampling technique was employed to select relevant variables directly linked to the study objectives. Data were collected using a structured data extraction template and analyzed using descriptive statistics, correlation analysis, Augmented Dickey-Fuller (ADF) unit root test, ARDL co-integration analysis, and ARDL estimation method. The ARDL estimation results revealed that CRR had a significant negative effect on unemployment (coefficient = -0.002661, p = 0.0004), indicating that increasing CRR reduces unemployment. MPR had an insignificant negative effect (coefficient = -0.032849, p = 0.5740), M2 had a significant positive effect (coefficient = 0.071987, p = 0.0000), EXR had a significant positive effect (coefficient = 0.028258, p = 0.0000), and LR had an insignificant negative effect (coefficient = -0.010800, p = 0.4131). The study recommended that the Central Bank of Nigeria should strategically adjust CRR to influence employment-generating sectors, should stabilize the exchange rate to protect local industries, should manage broad money growth to ensure productive investment, and should complement monetary tools with financial inclusion strategies to reduce unemployment in Nigeria.

CHAPTER ONE
INTRODUCTION (Preview)
1.1 Background of the Study
Monetary Policy serves as one of the key frameworks employed by central banks and governments worldwide to stabilize economies, curb inflation, and impact employment rates. The complex relationship between factors such as interest rates, money supply, reserve requirements, and the labor market has captured the attention of scholars and policymakers alike. As economists like Onwuka have noted (2021), central banks tend to control interest rates and liquidity either to stimulate or decelerate economic activity based on prevailing macroeconomic conditions. Effective monetary policy, as suggested by Nwamuo (2022), can mitigate cyclical unemployment resulting from stagnation; however, poorly executed policy tends to raise unemployment. For this reason, it is now widely accepted that monetary policy must do more than ensure price stability – it should also foster employment creation as an essential tool in addressing global economic challenges.

In light of these realizations, economists focus their attention on the specific influence certain tools of monetary policies have on employment. By example, Obiaje and Aondoakaa (2025) argue that the cash reserve ratio (CRR) significantly influences controlling the amount of money commercial banks can lend, which in turn has an impact on business investments and demand for labor. In the same fashion, the monetary policy rate (MPR), used as a benchmark to prescribe interest rates in the economy, has a direct impact on borrowing costs for businesses and households, thus impacting job creation and consumption activities (Omene, 2021). To further support this argument, Olurinola and Egbe (2024) contended that contractionary monetary policies tended to be indicated through higher MPR or CRR, which could bring down aggregate demand leading to increased unemployment; contrary these expansionary policies decrease unemployment by stimulating economic activities. Such perspectives underscore the intentional design of monetary variables with respect to employment outcomes.  

Moreover, alongside reserve balances and interest rates, broad money supply (M2) is also regarded as critical in relation to the transmission mechanism of monetary policy. Ejemeyovwi et al. (2021) observes that an increase in money supply often enhances liquidity within the financial market making it possible for banks to issue credit facilities to sustain business activities as well as absorb labor. In his 2020 study, Ozigbu explains that the increasing supply of money enables businesses to raise production and employment by alleviating financing constraints. This view is further supported empirically, as increased money supply during certain periods corresponds with greater employment levels, especially in developing countries where credit and financial programs are accessible (Babatunde & Babatunde Kehinde 2025). Therefore, in order to assess the total impact on employment opportunities created within an economy, one must consider the framework of how money circulates within it.

Along with these tools goes another central bank monetary policy instrument: exchange rate, which has a more indirect effect through trade competitiveness and price level equilibrium concerning employment. A weaker currency may expand export-led industries because they enhance the competitiveness of foreign goods and services which increases production and jobs in export sectors (Stanley Chima and Tonye 2024). As asserted by Onwuka (2021), overly valued or unstable exchange rates may severely undermine investment appeal particularly in economies heavily dependent on imported raw materials for production. To support this, Obiaje and Aondoakaa (2025) claim that exchange rate stability is critical for maintaining investor confidence since it is a major determinant of employment opportunities. This implies that sound management of the exchange rate can help stabilize the economy while simultaneously fostering employment opportunities.  

These factors are most directly related to the liquidity ratio, which defines the liquid assets within a bank in relation to its short-term obligations. Omene (2021) argues that increased liquidity ratio preserves financial stability, yet adversely constrains credit extension, which impacts investment and employment negatively. Ejemeyovwi et al. (2021) support this argument by suggesting that although prudential measures, such as liquidity ratios, help prevent systemic banking crises, overly stringent regulations may reduce available credit for productive activities and hinder job growth. Further empirical evidence such as Olurinola and Egbe (2024) has demonstrated that changes in liquidity ratios directly influence commercial banks’ lending in relation to business growth and employment productivity. Together these findings illustrate the complex relationship between monetary policy instruments and employment increases.

Linking the controversy to Nigeria, it is clear that monetary policy has acted as a megaphone of macroeconomic management by the Central Bank of Nigeria. In recent times, the CBN has been serving very aggressively with tools like the MPR, CRR and liquidity ratio to constrain inflation, manage credit surge and curb unemployment (Nwamuo, 2022). Onwuka (2021) has argued that Nigeria’s stubbornly high unemployment rate could be tackled by responding strongly with monetary policy directed toward stimulating investment and economic activity. For this Obiaje and Aondoakaa (2025) stressed that the impact of monetary policy in Nigeria tends to be highly influenced by its relation to fiscal policy and the configuration of the domestic economy. Therefore, there is a critical need for well-informed decision-making and economic strategy in Nigeria regarding targeted policies such as cash reserve ratio, monetary policy rate, broad money supply, exchange rate, liquidity ratio amid systemic frameworks addressing unemployment.

1.2 Statement  of the Problem

Unemployment remains an enduring macroeconomic issue for Nigeria with a troubling recent trend disproportionately impacting youth and those in actively employed working age brackets . The National Statistics Office projected that Nigeria’s unemployment rate was at 33.3% exhibiting persistent structural deficiencies alongside acute stagnation labor market utilization absoption amd failureof intervention frameworks targeting JOB CREATION accelerative levers.

These circumstances are far removed from the ideal scenario in which monetary policy would stimulate investment, induce production, and drive employment growth. In theory, a change in the monetary policy rate, change in cash reserve requirement, liquidity ratio, and broad money supply should impact credit accessibility, consumer spending, and business expansion a total of thirty-six determinants deemed critical for the reduction of unemployment (Onwuka, 2021). However, the persistent growth in unemployment suggests there is no relationship between Nigeria’s monetary policy goals and real labor market outcomes. Volatile exchange rates coupled with uneven enforcement of monetary policy tools exacerbate this problem by hindering these policies from functioning optimally for job creation (Nwamuo 2022). There is inadequate empirical work investigating the disproportionate effects specific instruments of monetary policy have on unemployment in Nigeria.

While many scholars have comprehensively discussed the linkage between monetary policy and macroeconomic stability, fewer have provided an unpacked discussion on how particular policies which are CRR, MPR , broad money supply , exchange rate , liquity ratio operate singularly or collectively to influence unemployment (Obiaje & Aondoakaa 2025; Omene 2021). Furthermore, gaps in research and the evolving nature of the Nigerian economy demand a better understanding of the nature of relations between these instruments and mechanisms of the labor market.

This study attempts to achieve this objective by providing an empirical assessment of the impact of any one of these monetary policy instruments on the unemployment rate in Nigeria.

1.3 Objectives of the Study

The main objective of this study is to examine the effect of monetary policy on unemployment in Nigeria. The specific objectives are to:

i.Examine the impact of the cash reserve ratio on the unemployment rate in Nigeria.

ii.Assess the effect of the monetary policy rate on the unemployment rate in Nigeria.

iii.Evaluate the influence of broad money supply on the unemployment rate in Nigeria.

iv.Investigate the impact of exchange rate on the unemployment rate in Nigeria.

v.Examine the effect of the liquidity ratio on the unemployment rate in Nigeria.
Other parts of chapter one include:
1.4 Research Questions

1.5 Research Hypotheses

1.6 Significance of the Study

1.7 Scope of the Study

1.8 Operational Definition of Terms

CHAPTER TWO
REVIEW OF LITERATURE (Preview)
This chapter critically examines relevant literature that would assist in explaining the research problem and, furthermore, recognizes the efforts of scholars who had previously contributed immensely to similar research. The chapter intends to deepen the understanding of the study and close the perceived gaps. This chapter, therefore, focuses on the concept of monetary policy, overview of monetary policy in nigeria, evolution of monetary policy, monetary control technique etc. The chapter covers the following subheadings:
2.1 Conceptual Framework
2.2 Theoretical Review
2.3 Empirical Review
2.4 Gaps in the Literature

2.5 Theoretical Framework

CHAPTER THREE
METHODOLOGY (Preview)
Research Design: The study adopted an ex-post facto research design.

Population of the Study: The population of the study comprises all macroeconomic data related to Nigeria’s monetary policy and unemployment rates from 2015 to 2024.

Sample Size: The sample size consists of ten annual time series observations covering the period from 2015 to 2024.

Sampling Technique: The study employed a purposive sampling technique to select relevant macroeconomic variables for the study.

Research Instrument: Data on monetary policy indicators were sourced from the Central Bank of Nigeria (CBN) Statistical Bulletin, while unemployment rate figures were obtained from the National Bureau of Statistics (NBS)

Methods of Data Analysis: The collected data were analyzed using descriptive statistics, including mean, standard deviation, minimum, and maximum values. Inferential and econometric techniques, including the Augmented Dickey-Fuller or Phillips-Perron unit root test, ARDL bounds testing for cointegration, the Autoregressive Distributed Lag (ARDL) model, and diagnostic tests such as heteroskedasticity, normality, and Ramsey RESET tests, were used to examine the short-run and long-run relationships between monetary policy instruments and unemployment. Statistical significance was assessed using p-values.

CHAPTER FOUR; DATA PRESENTATION, ANALYSIS, INTERPRETATION
MAJOR FINDINGS (Preview)
The analysis results were presented in tables. Based on the results obtained from the analysis, the following findings are made:

1.Cash Reserve Ratio (CRR) and Unemployment Rate: The analysis revealed that the cash reserve ratio has a significant negative effect on the unemployment rate in Nigeria. This indicates that an increase in the CRR effectively reduces unemployment, suggesting that tightening monetary policy through higher reserve requirements can control inflation while positively influencing employment levels.

2.Monetary Policy Rate (MPR) and Unemployment Rate: The findings showed that the monetary policy rate has a negative but statistically insignificant effect on unemployment. This suggests that changes in the MPR alone do not significantly impact the unemployment rate in Nigeria during the study period.

3.Broad Money Supply (M2) and Unemployment Rate: The study found that broad money supply has a significant positive effect on the unemployment rate. This implies that an increase in the money supply without corresponding productive investments may lead to higher unemployment, possibly due to inflationary pressures or misallocation of financial resources.

4.Exchange Rate (EXR) and Unemployment Rate: The exchange rate was found to have a significant positive effect on unemployment. This suggests that currency depreciation contributes to rising unemployment levels, likely due to increased production costs and reduced competitiveness of local industries.

5.Liquidity Ratio (LR) and Unemployment Rate: The result showed that the liquidity ratio has a negative but statistically insignificant effect on the unemployment rate. This indicates that while liquidity management might be aimed at supporting economic stability, its direct impact on unemployment during the study period was not substantial.

CHAPTER FIVE: DISCUSSION, CONCLUSIONS AND RECOMMENDATIONS
This chapter covers the following outline:
5.1 Discussion of Findings

5.2 Summary

5.3 Conclusion

5.4 Recommendations

5.5 Limitations of the Study

5.6 Suggestions for Further Studies

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