The Impact of Monetary Policy Rate on Inflation in Nigeria

Abstract

This work investigated the determinants of inflation in Nigeria using a monthly data from January 2007 to August 2014. The ordinary least square (OLS) method was adopted because of its best linear unbiased estimator (BLUE) property. The result showed that expected inflation, exchange rate and money supply influenced inflation, while annual treasury bill rate and monetary policy rate though rightly signed did not influence inflation in Nigeria within the period under investigation. The estimated model displayed that all the explanatory variables used for the analysis accounted for 90% variation in explaining the direction of inflation as regards to increase or decrease. The co-integration test showed that a long term relationship existed among the variables and they were stationary at order one I (1).

Keywords: Inflation, Co-integration, Keynesian and Monetary Policy