Endogenous Money, Financial Innovation, and Monetary Policy Transmission in Nigeria

The endogenous money debate has profound implications for the design and effectiveness of monetary policy, particularly in economies where financial innovation continuously expands the range of near-money instruments, potentially weakening the central bank's ability to control credit creation and manage inflation through conventional instruments. This study develops a theoretical model of endogenous money creation in the context of financial innovation and examines its implications for monetary policy transmission in Nigeria. The theoretical contribution is a post-Keynesian endogenous money model augmented with a financial innovation module that captures the credit-creating role of fintech platforms, mobile money operators, and non-bank credit intermediaries alongside conventional deposit money banks. The empirical application estimates the model using a factor-augmented vector autoregression incorporating a broad set of financial quantity and price variables from the Central Bank of Nigeria's monetary survey data, fintech transaction statistics, and capital market data for the period 2012 to 2023. The study quantifies the attenuation of monetary policy transmission effects attributable to the growth of non-bank credit creation and tests whether the Central Bank of Nigeria's policy instrument settings need recalibration to account for this structural change. The theoretical framework integrates the horizontalist and structuralist positions in endogenous money theory, the financial innovation-monetary policy interaction literature, and the shadow money literature. The study generates novel empirical estimates of effective credit multipliers that incorporate fintech and shadow banking activity. The PhD-level contribution lies in the theoretical synthesis, the methodological innovation in measuring non-bank credit creation, and the policy-relevant calibration exercise. Findings are directly relevant to the Central Bank of Nigeria's Monetary Policy Committee and to central banking scholarship on monetary policy in financially innovating economies. Keywords: endogenous money, financial innovation, monetary policy transmission, Nigeria, post-Keynesian