DOES MONETARY POLICY INFLUENCE GOVERNMENT EXPENDITURE IN NIGERIA?

Abstract

Monetary policies and government expenditure are interrelated and can influence the economic landscape of any economy. Effective coordination between these policy domains is therefore paramount to uphold macroeconomic stability and promote sustainable growth. This study examined the impact of monetary policies on government expenditure in Nigeria. The study investigates the relationship between monetary variables, including money supply, interest rate, inflation, and exchange rate; and government expenditure as a percentage of GDP, treated as the dependent variable. The theoretical framework is rooted in the principles of the Modern Monetary Theory (MMT). The Autoregressive Distributed Lag (ARDL) methodology was employed to analyze the relationship among the selected monetary policy variables and government expenditure. The study reveals a positive relationship between money supply and government expenditure, emphasizing that the management of money supply by the central bank significantly influences government spending. Additionally, the results indicate that short-term fluctuations in inflation do not exert a significant impact on government expenditure. In light of these findings, it is recommended that policymakers concentrate on a dual approach, combining sustainable fiscal policies with effective collaboration between fiscal and monetary authorities