Dynamic relationship between central bank financial policies, capital market volatility, and macroeconomic performance in Nigeria

Abstract

This study examined the dynamic relationship between central bank financial policies, capital market volatility, and macroeconomic performance in Nigeria from 1990 to 2023. Market capitalization is employed as a proxy for capital market dynamics, while Treasury bill rates capture the monetary policy stance of the central bank. Macroeconomic performance was assessed using annual GDP growth rates. Utilizing the Autoregressive Distributed Lag (ARDL) bounds testing framework, the analysis accommodates variables integrated at different levels and distinguishes between short-run and long-run effects. Unit root and co-integration tests confirm the existence of a stable long-run equilibrium relationship among the variables. The findings reveal that capital market fluctuations exert a destabilizing effect on macroeconomic performance in the short run but contribute positively to economic growth over the long term. Treasury bill rates demonstrate statistically significant short-term effects; however, their long-run impact is contingent upon the effectiveness of monetary policy transmission mechanisms. Additionally, exchange rate movements and consumer price stability emerge as key influencers of macroeconomic outcomes. The study underscores the necessity for coherent policy measures aimed at strengthening capital market infrastructure, attracting foreign investment, and enhancing investor confidence. Furthermore, reinforcing the credibility and consistency of monetary policy frameworks is essential for achieving long-term macroeconomic stability and sustainable growth in Nigeria.