Monetary Policy Instruments and Inflation Control in Nigeria

Vollständiger Abstract

Worum geht es in dieser Arbeit?

The study examines the impact of monetary policy instrument on inflation control in Nigeria during the period from1981 to 2021. In doing this, the ARDL approach to Cointegration and error correction modeling was employed to investigate the effectiveness of three monetary policy instruments, namely the monetary policy rate (MPR), the liquidity reserve ratio (LRR) and Exchange Rate (EXR) in the control of inflation in Nigeria in the short run and long run. The short-run and long-run effects of LRR on inflation was not significant even though it had a depressing effect on inflation in the short-run and long-run. The study finds that MPR negatively and significantly affects inflation in the short run (with a lag of one-year). The long-run effect of MPR is positive and significant. The effect of Exchange Rate (EXR) on inflation was found to be negative and significant in the short-run and long-run, implying that Exchange Rate (EXR plays significant role in reducing inflation in the country. Based on these findings, the study recommends, as measure to achieve lower inflation, upwards adjustment of the MPR to reduce inflation in the short-run, and downward adjustment of same to reduce inflation in the long-run. It also recommends downward adjustment of the LRR as a measure to reduce inflation in the short-run and long-run. Further recommendation of the study is an upward adjustment of the Exchange Rate (EXR) to achieve lower inflation in the short-run and long-run.