Impulse Response of Agricultural Performance to Monetary Policy Dynamics in Nigeria: VAR Model Analysis

Abstract

This study investigates the impact of monetary policy shocks on agricultural performance in
Nigeria from 1981 to 2021, employing impulse response and variance decomposition
estimators. The impulse response results reveal that average agricultural performance responds
positively to monetary policy rate initially, with a subsequent downturn, while lending interest
rate shocks significantly boost performance in the short term but adversely affect it later.
Liquidity ratio exhibits an initial increase followed by a decline, then a positive response for
the remaining periods. Deposit money bank credit to agriculture initially elicits a negative
response, followed by a steep rise and maintenance of a positive trend. Findings from the
variance decomposition estimator indicate that monetary policy instruments, particularly
monetary policy rate, liquidity ratio, lending interest rate, and deposit money bank credit to
agriculture, collectively account for 23.79% of the total variation in agricultural performance.
Monetary policy rate shock dominates with 44.35%, followed by liquidity ratio (32.64%),
lending interest rate (18.78%), and deposit money bank credit to agriculture (4.32%).
Recommendations include emphasizing expansionary monetary policies, easing access to credit
for farmers, prioritizing affordable credit programs, and increasing budgetary allocations to the
agricultural sector for sustained economic contributions.