Abstract:

Most developed countries have a variety of market instruments that they target to influence the direction of the growth of the economy. While it may be desired to push in one direction by adopting market variables it is more meaningful to adopt two. This paper studied the manipulation of the market variables of interest rate and exchange rate in the desired direction in which the country should advance. The endpoints targets of credit to the private sector, the capital formation and Gross domestic product were adopted for the study. The study also employs Granger VAR to estimate the data sourced from WDI and Central Bank of Nigeria. The results show that interest rate is more significant in both differenced and non-differenced results. The impact of exchange rate is highly significant with capital formation only. Though all the endpoints show a high-level of significance at the overall level, interest rate is more important than exchange rate and RGDP is the most important for the entire variable as an endpoint. The paper recommends the active management of interest rate, first to encourage investment and for a reduction in the rate rather than the current practice. Since the current management of the exchange rate is not sustainable in the long run literature supports the management of the variables within control while the external variable should be less actively managed.