Monetary Policy and Economic Stability: An Assessment Review

Enyadike Frederick; Umueme Benjamin

doi:10.59890/ijefbs.v3i4.126

Authors

Enyadike Frederick Department of Economics, Novena University, Ogume, Delta State
Umueme Benjamin Department of Economics, Novena University, Ogume, Delta State

DOI:

https://doi.org/10.59890/ijefbs.v3i4.126

Keywords:

Monetary Policy, Economic Stability, Assessment Review

Abstract

This study examined the effectiveness of monetary policy in achieving economic stabilization in Nigeria, focusing on the impact of specific monetary policy tools on inflation. The primary objective is to assess how the monetary Policy rate (MPR), Cash Reserve Requirements (CRR), and the Exchange rate (EXCH) influence the inflation rate (INFR) in Nigeria. Data for the study was collected from the Central Bank of Nigeria Statistical Bulletin, the World Bank, and the National Bureau of Statistics, spanning the period from 1986 to 2023. The inflation rate served as the dependent variable, while the MPR, CRR, and EXCH were used as independent variables. The study employed a time series research design, utilizing the Autoregressive Distributed Lag (ADRL) model to analyze the relationships between these variables. The analysis revealed that, contrary to expectations, the MPR has a positive and statistically significant impact on inflation in the long run. The CRR, however, has a negative and significant influence on inflation, while exchange rate depreciation is associated with increased inflation in both the long run and the short run. The study concludes that the effectiveness of monetary policy in Nigeria is complex and influenced by factors such as transmission mechanism weakness, structural rigidities, and exchange rate volatility. It recommends that the Central Bank of Nigeria focus on enhancing the efficiency of the monetary policy transmission mechanism to improve the effectiveness of its policy tools.

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