Monetary Policy, Income Inequality, and Long-Run Growth in Nigeria: Structural Evidence from an Emerging Market Economy

Abstract

This study examined whether monetary policy shocks exert persistent distributional effects capable of shaping economic growth in Nigeria, an emerging market characterised by financial frictions and elevated income inequality. While prior research has often analysed monetary policy, inequality, and growth separately, limited evidence integrates these relationships within a unified structural framework. To address this gap, the study employed a Structural Vector Autoregressive (SVAR) model using annual data from 1990 to 2024. The identification strategy isolated exogenous monetary policy shocks and traced their transmission through lending rates, credit access, and private sector credit to output and income inequality. Impulse response functions and forecast error variance decomposition reveal that monetary and financial shocks generate persistent distributional effects, with credit channels amplifying their impact on growth. The findings indicate that monetary policy in Nigeria is not distribution-neutral and that inequality functions as a significant transmission mechanism influencing growth dynamics. The study contributes to emerging market literature by structurally identifying monetary shocks and demonstrating how financial and distributional channels jointly shape macroeconomic outcomes.