THE IMPACT OF MONETARY POLICY ON CONTROLLING INFLATION IN THE NIGERIAN ECONOMY

Oduneka Anagha, Chukwuma Eke, Nkama Nkama

Abstract


The core determination of this study is to analytically study the proficiency of monetary policy in controlling inflation in Nigeria. Annual time series data, sourced from Central Bank of Nigeria (CBN) Statistical Bulletins (1990–2019) were used to examine and estimate the three multiple regression models drawn up, with the aid of Software Package for Social Sciences (SPSS). The study modelled inflation rate in Nigerian (dependent variable) as a function of monetary policy (independent variables) made up of monetary policy rate (MPR), treasury bill rate (TBR), savings rate (SR), prime lending rate (PLR), maximum lending rate (MLR), growth of narrow money supply (M1g), growth of broad money supply (M2g), net domestic credit (NDC), net credit to government (NCG) and credit to private sector (CPS). The result shows collinearity that corresponds with the Eigenvalue condition index, and variance constants were less than 0.5. The Durbin Watson statistic shows the absence of multiple autocorrelation and negative autocorrelation, while the variance inflation factors (VIFs) indicate the absence of autocorrelation. The results show that MPR, TBR, PLR, MLR, and NDC are not statistically significant, while SR, M1g, M2g, NCG and CPS are statistically significant in explaining the changes in Inflation rate in Nigeria. The implication of this finding is that some monetary policy instruments are effective in managing inflation while others are not. We therefore recommend that contractionary monetary policy aimed at curtailing excess money in circulation should be used to moderate inflation in Nigeria

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