Abstract:

The debate about overreliance on oil and its non-sustainability to resolve major economic problems in Nigeria has shifted more attention to the real sector of the Nigerian economy. Over a few years ago, the government and the monetary authority has refocused its economic and policy decisions to include the growth of the sector. In achieving this, the government has, among its policy approaches, used the monetary policy instrument to improve the sector and addressed some of the problems that have bedeviled the sector over the past years. This study reexamined the process through which monetary policy affects each sector of the real economy, using the structural vector autoregression (SVAR). Seasonally adjusted quarterly data between the period of 2008Q1 and 2018Q4 were used. The results revealed that credit and asset price channels are the most dominant monetary policy transmission channels to the real sector, which comprises of agricultural, manufacturing, construction, services and trade subsectors. When credit risk variable was added to the model, there was an intervening role of this variable in the transmission process of monetary policy to the real sector. Further findings showed that credit risk brings about a reorder of percentage response of sectoral outputs to shocks from the variables that represent channels of monetary policy transmission to the real sector. This study, therefore, recommends that the monetary authority should always consider credit risk, while taking real sector targeted policy decisions, because it plays an intervening role that is vital to how effective the monetary policy impacts and improves the performance of the real sector at the sectoral level.