Monetary Policy and Price Stability in Nigeria: 1981-2015

Abstract

The study investigated the impact of monetary policy on price stability in Nigeria. Annual data covering 1981 – 2015 were utilized. Unit root test was conducted using Augmented Dickey-Fuller test method and the result showed that the variables were stationary though at different levels. Co-integration test was also conducted using Johanssen co-integration technique and the result revealed that the variables in the model are co-integrated implying that the variables have a long run relationship. The model was estimated using ordinary least square method and the result revealed that money supply and liquidity ratio have a significant impact with price stability. The result revealed that 96.27 percent of the total variation in the model is caused by changes in the explanatory variables. Based on these findings, the study recommends that the central bank should adopt appropriate monetary policy by reducing money supply, increasing the liquidity ratio as these will lead to reduction in consumer’s price index.

Keywords.  Monetary policy; Price stability, Money supply