Impact of Monetary Policy on Inflationary Process in Nigeria

Abstract

The paper examines the Impact of Monetary Policy on Inflationary Process in Nigeria from 1986 – 2013, using ordinary least squared regression. We started with investigating the stochastic properties of the data using the Augmented Dickey-Fuller (ADF) and Phillips-Perron (PP) tests for unit roots. Both tests suggest that all the variables of interest which comprise of inflation rate, Money supply, interest rate and Unemployment are integrated at the second difference. The regression results showed that monetary policy have significant influence on inflation.  It is recommended that the government should embark on joint coordination of fiscal and monetary authorities with respect to liquidity flows in the economy to aid curb inflation. Furthermore, where deficit financing is inevitable, it should be put into productive activities in order to create more employment opportunities, raise national output, and increase the living standard of the people.

Keywords: Monetary policy, inflation, money supply, interest rate, unemployment