ABSTRACT:

The primary purpose of this paper is to examine and measure the relationship between monetary policy shocks and investment in Nigeria between 1988 and 2013. Quarterly data were sourced from IMF World Economic Outlook Data Base, Central Bank of Nigeria Statistical Bulletin and World Bank Data Base. Structural VAR model with block exogeniety procedure was employed as estimation technique. The results of findings of this study which were analysed for macroeconomic aggregates, and external sector variables were consistent with the predictions of the theory and also with the empirical literature. The results of the study both from impulse responses function and variance decomposition further confirmed that effects of contractionary monetary policy on investment were extremely large during the study period. Based on these findings, it is recommended that Nigerian government and monetary authority should promote policies that result into a stable macroeconomic environment. This will pave way for investment, relative price stability, monetary policy stability, exchange rate and interest rate stability. Also, a high significant influence of foreign interest rate (represented by USA interest rate) on investment is a good signal to the government and investors that foreign monetary policy shocks should be adequately monitored. Sudden inflows of capital called “hot money” like the one employed by U.S unconventional monetary policy is inimical and dangerous for investment in Nigeria.