Impact Of Money Market Instruments on Economic Growth (Nigeria as a case study)

This study aims at investigating the impact of money market instruments on economic growth in Nigeria. This study adopted a time series analysis of money market instruments on economic growthusing ordinary least squares (OLS) regression. The Money market instruments used in the study are Treasury Bills (TB), Bankers Acceptance (BA), Treasury Certificate (TC), Certificate of deposits (CD) and Commercial Papers (CP). Economic growth was measure using gross domestic product (GDP). The study controlled for inflation rate (INF) and interest rest (INT). Data were collected on these variables for a test period 1981 – 2015. The underlying theory that addressed money market instruments and economic growth in this study is the finance-growth model of Schumpeter (1911) and McKinnon and Shaw (1973). The research questions of this study are; to what extent willtreasury bill rate affect gross domestic product growth rate?, what is the impact of treasury certificate affect on gross domestic product growth rate?, to what extent will commercial papers affect gross domestic product growth rate?, what is the impact of certificate of deposits on gross domestic product?, What is the influence of banker’s acceptance on gross domestic product?. Data collected were analyzed using unit root test, descriptive statistics, ordinary least squares (OLS) regressionand diagnostic tests (linearity graph, residual test). Findings revealed that Bankers’ Acceptance (BA), Certificate of deposits (CD) and Commercial Papers (CP) have negative relationship with gross domestic product. Treasury bills and treasury certificate have positive relationship with gross domestic products while treasury certificate is the only significant positive variable affecting gross domestic products in Nigeria from 1981 - 2015, however, descriptive statistics revealed that Treasury Certificate with the lowest average mean value is the least traded money market instruments sampled in this study while treasury bills are the most traded. Findings also revealed that interest and inflation have significant negative relationship with gross domestic product. This practically indicates that the use of treasury bills in Nigeria by the monetary authority is not tailored towards ensuring economic growth but serves to control money supply in the country. Results indicate that for gross domestic products to be enhanced, efforts must be channeled to increase sales of treasury certificates. Further practical implication means that gaps in fiscal operations cannot be bridged with the further selling and buying of treasury bills and treasury certificates. This study recommends that financial policies that would aim at increasing the size and value of transactions in money market in Nigeria should be implemented by the government as the economy is largely based on it. This will also improve the growth per capita GDP. Also regulatory measures that would check fraud and other malpractices which could break the trust that investors already have should be put in place. This study recommends that money market authorities should ensure a tradeoff  between  money market used to control money supply and money market instruments  that can be used to enhance  economic growth in the country. Foreign investors should also be encouraged  to participate while transparency and fair trading should be the order of the day