Monetary policy deals with the discretionary control of money supply by the monetary. If the is curve is inelastic, fiscal policy is more effective than monetary. To curtail these threats the stance of monetary policy changed from monetary easing to tightening, from september 2010 to december 2011 and the following monetary policy actions were taken during the period. Central bank of nigeria, monetary policy department monetary policy series cbnmpdseries012006 monetary policy refers to the specific actions taken by the central bank to regulate the value, supply. The main purpose of this study is to empirically examine the effectiveness of monetary policy in controlling inflation in nigeria. Babajide, isibor areghan akhanolu and okafor tochukwu. Monetary policy increases liquidity to create economic growth. Using ordinary least squares technique ols, he regressed inflation on domestic credit, money supply, exchange rate and gross. High inflation rates have dire consequences for economic growth. We recommended that for sustainable economic growth to be achieved in nigeria, the level of inflation should be stabilized by the monetary authorities. Price volatility, expectations and monetary policy in nigeria by adamgbe, emmanuel terlumun1 abstract the study has as its objectives, to determine the influence of price volatility and price expectation in.
Annual time series data, sourced from central bank of nigeria cbn statistical bulletins 19852012 were used to analyze and estimate the three multiple regression models drawn up, with the aid of software package for social sciences spss. Central banks use interest rates, bank reserve requirements, and the amount of government bonds that banks must hold. Our discussion will address i changing views of the role and effectiveness of monetary policy, ii inflation targeting as an effective monetary policy, iii monetary policy and shortrun output stabilization, and iv problems in implementing a shortrun stabilization. Central bank of nigeria shortterm monetary policy framework in nigeria before 2002, the central bank of nigeria had designed monetary policy in line with fiscal duration of one year monetary policy had. Apr 16, 2020 monetary policy increases liquidity to create economic growth. In the words of orubu2009, the nigerian economy has witnessed different eras of severe inflationary pressure in the form of increase in prices of. A decade later, perspectives on the effectiveness of monetary policy had changed. Examine the effect of monetary policy on inflation in nigeria.
The effectiveness of monetary policy in the control of. The past 10 years have been characterized by an average growth rate of. Data were collected from the statistical bulletin and annual report and statement of accounts of the. Is a monetary policy that seeks to increase the size and volume of money supply, it can be increase by buy bonds in exchange for hard currency payment to adds that amount of currency to the money supply. The dynamics of monetary policy and inflation in nigeria. Inspite of the monetary policy of the central bank of nigeria over the years towards stabilizing both inflation and output using the interest rates and the stock of money supply instrument. Price volatility, expectations and monetary policy in nigeria. Monetary policy in a low inflation economy with learning john c. Furthermore, countries such as india have been very proactive in having an effective monetary policy tool. Williams executive vice president and director of research federal reserve bank of san francisco in theory, monetary policies that target the price level, as opposed to the inflation rate, should be highly effective at stabiliz. This project seeks to evaluate the effectiveness of the cbns monetary policy by assessing the extent to which the monetary policies have impacted on the growth process of nigeria using the major. Should major economies on the continent begin to follow in the footsteps of india.
This to know the control of inflation using central bank of nigeria monetary policy. Central bank of nigeria, monetary policy department monetary policy series cbnmpdseries012006 monetary policy refers to the specific actions taken by the central bank to regulate the value, supply and cost of money in the economy with a view to. In nigeria, the monetary policy is the macroeconomic policy laid down by the central bank of nigeria. Price volatility, expectations and monetary policy in nigeria by adamgbe, emmanuel terlumun1 abstract the study has as its objectives, to determine the influence of price volatility and price expectation in the rate of inflation as a measure of the price level. It is the demand side economic policy implemented by the government to achieve macroeconomic objectives like growth, consumption, liquidity and inflation. When there is a potent monetary policy instrument, it is expected that contractionary monetary policy shocks should be able to reduce inflationary pressure bongabonga, 2017. Without the support of a disciplined and broadly predictable fiscal stance, the central bank was unable to make credible commitments to an inflation target or, indeed, to any other intermediate target such as the monetary supply or the exchange rate. Through the instrument used in monetary policy help us by the control of inflation in an economy. The monetary policy easing measures coupled with huge fiscal expansion put much pressure on inflation, exchange rate and external reserves.
The main objective of this study is to assess the effectiveness to the monetary policy instruments in nigeria. Ogbonna inflation, exchange rate and efficacy of monetary policy in nigeria. Finally, the cost and benefit analysis of monetary policy in nigeria is investigated by. Monetary policy in nigeria the impact of monetary policy on nigerias economic growth.
The importance, effect, causes, relationship, comparison, history, role, solutions are discussed. Introduction during the 1980s and 1990s, the vulnerability of emes to shocks was often exacerbated by high fiscal deficits, underdeveloped domestic bond markets, and largecurrency and maturity mismatches. Finally, the cost and benefit analysis of monetary policy in nigeria is investigated by estimating a ncmtype phillips curve. Nigerias ability to pursue a coherent monetary policy. Inflation, exchange rate and efficacy of monetary policy. Monetary policy is the deliberate use of monetary instruments direct and indirect at the disposal of monetary authorities such as central bank in order to achieve macroeconomic stability macroeconomic stability refers to achievement of internal and external balance. Monetary policy and its effectiveness on economic development in nigeria author akinjare victoria, a. One of the major policy instruments for monetary policy in nigeria is cbns. Monetary policies involves changes in the quantity of money held by the public. Williams executive vice president and director of research federal reserve bank of san francisco in theory, monetary policies that. A low and stable rate of inflation promotes price transparency and, thereby, sounder economic decisions.
Inflation, economic growth, multiple regression model, monetary policy, nigeria. Doc the impact of monetary policy on inflation in nigeria shetima. To curtail these threats the stance of monetary policy changed. Monetary policy can thus be simply put as the adjusting of money supply in the economy to achieve some combination of inflation and output stabilization mathai, 2012. The effectiveness of monetary policy in the control of inflation in. The analysis addresses changing views of the role and effectiveness of monetary policy, inflation targeting as an effective monetary policy, monetary policy and shortrun output stabilization, and problems in implementing a shortrun stabilization policy. Monetary policy rests on the relationship between the rates of interest in an economy, that is the price at which money can be borrowed, and the total supply of money. Pdf the major objective of this study is to empirically analyze the impact of monetary policy on the economy of nigeria. Through these channels, monetary policy can be used to stimulate or slow aggregate spending in the short run.
Monetary policy is the policy adopted by the monetary authority of a country that controls either the interest rate payable on very shortterm borrowing or the money supply, often targeting inflation or the. Nigeria maintains monetary policy rate at 12% premium. Get free research paper on monetary policy and inflation in nigeria economy cbnproject topics and materials in nigeria. Ascertain the effect of monetary policy on cooperant factors in. Our discussion will address i changing views of the role and effectiveness of monetary policy, ii inflation targeting as an effective monetary policy. This is approved for students in accountancy, business, computer science. Fiscal policy, public debt and monetary policy in emerging. An econometric analysis of the monetary policy reaction. Monetary policys role in fostering sustainable growth remarks by john c. Pdf this study examines the effectiveness of monetary policy in controlling inflation in the nigerian economy using a datarich framework.
Monetary policy and inflation in nigeria economy project. The bank manipulates the operating target reserve money over which it has substantial direct control to influence the intermediate target broad money supply, m2 which in turn impacts on the ultimately or final objective of monetary policy, i. Monetary policy uses a variety of tools to economic growth, inflation, exchange rates with other currencies and unemployment. Documents in econstor may be saved and copied for your.
Unlike fiscal policy which relies on government to spend its way. The institutional framework for monetary policy in nigeria 18 7. Data were collected from the statistical bulletin and annual report and statement of accounts of the central bank of nigeria as well as the annual abstracts of statistics various. Williams president and ceo federal reserve bank of san francisco at the. On the other hand, if the is curve is elastic, monetary policy is more effective than fiscal policy. The study modeled 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.
Director, monetary policy department, central bank of. Monetary policy and its effects on inflation in nigeria. The dynamics of monetary policy and inflation in nigeria doi. Introduction during the 1980s and 1990s, the vulnerability of emes to shocks was often exacerbated by high fiscal deficits. Central bank of nigeria, monetary policy department. Monetary policy tools are measures adopted by the monetary authority in order to influence inflation and inflationary pressures as means to ensure macroeconomic stability in.
Objectives and targets of monetary policy in nigeria. Monetary policy involves the management of money, the supply of money and interest rate. It was however concluded that monetary policy has been partially effective in controlling in inflation rate in nigeria. Fiscal policy, public debt and monetary policy in emes. For instance, nigerias real gross domestic product gdp grew at an average of about 2. Monetary policy guides the central banks supply of money in order to achieve the objectives. In fact, in the intermediate range, the effectiveness of monetary and fiscal policies depends largely on the elasticities of the is curve. To understand the dynamics and source of inflation the standard ncmtype phillips curve is augmented. Monetary policy deals with the discretionary control of money supply by the monetary authorities in order to achieve the desired economic goals. This is approved for students in accountancy, business, computer science, economics, engineering, arts.
Some countries on the continent such as nigeria, south africa, ghana and kenya have been reactive about using interest rate increase as a monetary policy tool. Monetary policy in nigeria developing countries growth policies are better delivered as full packages since fiscal and. Annual time series data, sourced from central bank of nigeria cbn. This project seeks to evaluate the effectiveness of the cbns monetary policy by assessing the extent to which the monetary policies have impacted on the growth process of nigeria using the major objectives of monetary policy as yardstick. If the is curve is inelastic, fiscal policy is more effective than monetary policy. Jun 20, 2016 some countries on the continent such as nigeria, south africa, ghana and kenya have been reactive about using interest rate increase as a monetary policy tool. Introduction inflation refers to the persistent and the continous rise in. Monetary policy is the policy adopted by the monetary authority of a country that controls either the interest rate payable on very shortterm borrowing or the money supply, often targeting inflation or the interest rate to ensure price stability and general trust in the currency. Ascertain the effect of monetary policy on cooperant factors in economic growth in nigeria.
Without the support of a disciplined and broadly predictable fiscal stance, the central bank was unable to make credible commitments to an inflation. This page provides nigeria interest rate actual values, historical data, forecast, chart, statistics, economic calendar and news. Monetary policys role in fostering sustainable growth. Central bank of nigeria shortterm monetary policy framework in nigeria before 2002, the central bank of nigeria had designed monetary policy in line with fiscal duration of one year monetary policy had always faced the problem of non committal to both intermediate and ultimate targets the optimal longterm policy was not consistent. In the long run, monetary policy mainly affects inflation. Central banks use interest rates, bank reserve requirements, and the amount of. This would go a long way in assessing the extent to which the monetary policies have impacted on the growth process of nigeria using the major objectives of monetary policy as yardstick. Monetary policy in a low inflation economy with learning. Generally, this study will dwell on the overview of monetary policy situations in the nigerian economy. To examine the impact of inflation on economic growth in tanzania. Fiduciary or paper money is issued by the central bank on the basis of computation of estimated demand for cash. With special focus on econometric modelling of monetary policy rules of various types, they employed different. Monetary policy as one of the tools of controlling money supply in an economy of a nation by.
370 1145 80 1165 555 539 281 655 408 1021 795 633 219 1043 253 1318 1185 726 687 305 662 897 1207 1292 1024 787 1098 1086 1041 669 417