Effectiveness of Monetary Policy in Reducing Inflation in Nigeria (1970-2013)

Abstract

The research study examined the “Effectiveness of Monetary Policy in reducing inflation in Nigeria’’, for the period 1970 - 2012, employing the co integration and Error Correction Technique of econometric analysis.  The data were sourced from the Central Bank of Nigeria statistical bulletin of various years.  The test of both the Unit root and co-integration revealed that there is a long relationship between the variables while the Granger Causality test revealed an un-directional relation between Monetary Policy and inflation.  However, the VECM test revealed that inflation, Gross Domestic Product (GDP) and exchange rate are negatively related and positively related to broad money supply (M₂) and domestic credit.  The study is of the recommendation that Central Bank of Nigeria should balance its control instruments to achieve macroeconomic stabilization and development, money supply should be controlled to ensure high employment, interest rates should be liberalized to control price and output movement, the society needs to be sanitized of corruption and in all. Monetary policy measures should be designed in a way that enhances the attainment of the macro-economic objectives while checking inflationary trend.

Keywords:Effectiveness, Monetary Policy, Inflation, Nigeria