THE IMPACT OF MONETARY POLICY ON PRICE STABILITY IN NIGERIA, (1999 – 2021)

Abstract

Due to inconclusive and divergent outcomes in the empirical literatures on the impact monetary policy has on price stability over the past years in Nigeria, it is important to ascertain the impact monetary policy have on price stability in lieu of both theoretical and empirical assertions on the nexus between the two variables. Therefore, the objective of this study is to examine the impact of monetary policy on price stability in Nigeria between the periods of 1999 and 2021. This study collected time series data from Central Bank of Nigeria statistical bulletin (2021) and World Development Indicators (2021) on interest rate, money supply and cash reserve ratio as well as consumer price index that cover twenty two (23) years. Thereafter, auto-regressive distributed lag was used to analyse the time series data collected. Finding of this study reveals that interest rate has positive and statistically insignificant impact while money supply at different lag has both positive and negative insignificant impact on price stability. Moreover, cash reserve ratio has negative and significant impact on price stability. Lastly, finding of the study reveals that MS2 Granger Cause CPI and CPI does not Granger Cause MS2. Therefore, the following recommendations are suggested: that monetary policy authority should effectively and continuously apply interest rate (INR) to achieve price stability. More so, monetary policy authority should be caution in applying money supply and cash reserve to achieve price stability. That is to say, that increase or decrease in money supply should base solely on expansionary and contractionary policy targeting at price stability.