Monetary Policy and Inflation Control in Nigeria

Abstract

This paper examines the effectiveness monetary policy as an anti-inflationary measure in Nigeria. in order to explore the relationship between inflation and monetary impulses, the cointegration and error correction methods approach were employed on quarterly time series data spanning from 1980Q1 to 2012Q4. The unit roots test shows that all the variables are differenced stationary. The cointegration test indicates a long-run relationship between inflation and the vector of regressors employed. The estimated result reveals that for the period covered, interest rate, exchange rate, money supply and oil-price are the major causes of inflation in Nigeria. It was also observed that although in the short-run increased in income encourages inflation, proper utilization of the growth would reduce inflation. The Money supply variable shows a significant positive impact on inflation both in short and long runs. This means that Nigerian inflationary situation is driven by monetary impulses. As such, anti-inflationary monetary policy measures, backed-up by some necessary fiscal policies are incumbent for structural and economic stabilization.

Keywords: Monetary policy, Inflation and Cointegration