MONEY SUPPLY AND CAPITAL MARKET DEVELOPMENT IN NIGERIA: THE MODERATING ROLE OF MONETARY POLICY RATE
Abstract
The capital market offers diverse and abundant opportunities for individuals, institutional investors, the government, and the economy, serving as a platform for businesses to access capital for expansion, innovation, and entrepreneurial ventures. The supply and availability of money, along with the role of the monetary policy rate, can enhance liquidity and activity in capital markets. This study examined the moderating role of the monetary policy rate on the relationship between money supply and capital market development in Nigeria, covering a period of 38 years from 1985 to 2022. The study employed the Autoregressive Distributed Lag (ARDL) technique. Results indicated that money supply and the monetary policy rate boost capital market development in Nigeria in the short term, while, in the long term, only money supply increases total traded value. The interactive effect showed that the monetary policy rate reduces the negative impact of money supply on capital market development in Nigeria in the short run. Additionally, the study found that interest rates hinder capital market development in Nigeria in the short term. In contrast, inflation negatively affects only the total traded value in Nigeria in both the short and long term. Therefore, policymakers should carefully calibrate the monetary policy rate to balance the capital market, inflation, and economic growth. Furthermore, policymakers should promote monetary fiscal policy coordination to support economic growth and stability, and foster regulatory cooperation to advance capital market development and stability.