| Title: | Assessing the effects of Monetary Policy on Price stability in Nigeria |
| Author(s): | E. Nyeche |
| Abstract: | This study examined the empirical relationship between monetary policy and consumer price index in Nigeria during 1981-2021. The specific objectives were to determine how money supply, lending rate, monetary policy rate and exchange rate affected the consumer price index, proxy for inflation. Time series data were obtained from the Central Bank of Nigeria Statistical Bulletin, National bureau of Statistics and World Development Indicators and analysed using descriptive statistics as well as the econometrics method of unit root, bounds cointegration test and ARDL estimation. The findings from the unit root test showed that the variables were mixed integrated. While consumer price index, lending rate and monetary policy rate were stationary at levels, the other variables were stationary at first difference. The bounds cointegration test results showed that there was evidence of long run relationship between dependent and the explanatory variables. The ARDL results showed that money supply had a positive and not statistically significant effect on the consumer price index, indicating that one percent increase in the money supply increases the consumer price index in Nigeria by 162.09 percent in the long run; the lending rate showed a negative and not statistically significant effect on the consumer price index, indicating that one percent increase in the lending rate decreases the consumer price index by 111.21 percent in the long run; the result further showed a positive and statistically significant effect of monetary policy on consumer price index, indicating that one percent increase in the monetary policy rate increases the consumer price index by 311.20 percent in the long run; and the exchange rate showed a negative and statistically significant effect on the consumer price index in Nigeria, indicating that one percent increase in the exchange rate decreases the consumer price index by 12.73 percent in the long run. Based on the findings, the study recommended among others, that the government should implement policies aimed at stabilizing the exchange rate, such as enhancing foreign exchange reserves through diversified exports and attracting more foreign direct investments. Additionally, policies that reduce the demand for imports, such as promoting local production, can help stabilize the exchange rate and, by extension, control inflation. |
| Keywords: | Monetary Policy Rate, Money Supply, Exchange Rate and Consumer Price Index |
IJAAMSThe International Journal of Applied Economics, Agriculture and Management Sciences (IJAAMS) is a publication of the Department of Agricultural & Applied Economics of the Rivers State University, Port Harcourt, Rivers State, Nigeria [...]
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