The aim of this study was to investigate the effect of monetary policy variables that were consistently adopted by the Central Bank of Nigeria (CBN), on the inflation rate in Nigeria for the period 2009-2014. Two key issues where addressed; one, whether there was a significant relationship between the policy variables adopted and inflation. Two, whether the combined impact of all these variables adopted, was significant on the inflation rate. Data was sourced from the CBN’s statistical bulletin 2014, from the website of the CBN and the National Bureau of Statistics (NBS). The Ordinary Least Squares (OLS) method was adopted because of its best linear unbiased estimation (BLUE) property. The Augmented Dickey-Fuller test for stationarity, showed that the variables were all stationary at order one (1). Cointegration test also revealed that a long run relationship exists among the variables. The results show that apart from the MPR, all other policy variables were significant at the 5% level of significance (the monetary policy horizon) and this addressed the first key issue highlighted. For the second key issue, the estimation model displayed that all the explanatory variables adopted by the CBN (as used in this research) accounted for 61% of the variation in the inflation rate as regards its rise or drop. Hence, the combined effect of all the variables adopted by the CBN did reduce the inflation rate, as the monetary policy shocks did get traction on the economy in arriving at the policy trajectory of an inflation band of 6-9%. The CBN should constantly examine its policy environment to determine the instrument mix optimization that best serves its prime purpose of macroeconomic stability, especially when its inflation target is achieved.
Table of Contents
CHAPTER I INTRODUCTION
1.1 Background to the Study
1.2 Statement of the Problem
1.3 Objectives of the Study
1.4 Research Questions
1.5 Research Hypotheses
1.6 Significance of the Study
1.7 Scope of Study
CHAPTER II REVIEW OF RELATED LITERATURE
2.1 Conceptual Framework
2.1.1 The Concept of Inflation and Inflationary Pressures
2.1.2 The Concept of Monetary Policy and Monetary Policy Tools
2.2 Theoretical Framework
2.2.1 Demand Oriented Theories of Inflation
2.2.2 Supply Oriented Theories of Inflation
2.2.3 The Structuralist's View of Inflation
2.2.4 The Monetarists' Theory of Inflation
2.3 Monetary Policy and Macroeconomic Stability
2.4 Strategies of Monetary Policy to Achieve Macroeconomic Stability
2.4.1 Monetary Targeting
2.4.2 Price Level Targeting
2.4.3 Inflation Targeting
2.5 Tools of Monetary Policy
2.5.1 Direct tools of Monetary Policy
2.5.2 Indirect Instruments of Monetary Policy
2.6 Empirical Literature Review
2.6.1 Empirical Research Gap
CHAPTER III METHODOLOGY
3.1 Research Design
3.2 Nature and Sources of Data collection
3.3 Model Specification
3.4 Description of variables
3.4.1 Inflation
3.4.2 Bank Reserve Requirement (REQ)
3.4.3 Money Supply
3.4.4 Exchange Rate (EXR)
3.4.5 Monetary Policy Rate (MPR)
3.4.6 Treasury Bills Rate (TBR)
3.5 Econometric tests
3.5.1 The Unit Root Model
3.5.2 Co-integration Test
3.5.3 Error Correction Model
3.6 Hypotheses Testing:
3.6.1 t-test- (significance test)
3.6.2 F-test:
3.6.3 Goodness of fit test (R²):
3.7 Model to Test Hypotheses
3.7.1. Broad money supply has no major impact on the rate of inflation
3.7.2. The Exchange rate movement has no significant effect in checking a spike in the inflation rate for the period under study
3.7.3. The Monetary policy rate has no significant effect on the rate of inflation
3.7.4. The treasury bills rate movement does not have an effect on the rate of inflation?
CHAPTER IV DATA PRESENTATION, ANALYSIS OF RESULT AND DISCUSSION
4.1 Data Presentation and Analysis
4.2. Ordinary Least Square Regression Result
4.3 Unit Root Test
4.4 Johansen Cointegration Test
4.5 Error Correction Mechanism
4.6 Hypotheses testing
4.6.1 Broad Money supply has no major impact on the rate of inflation
4.6.2 The Exchange rate movement has no significant effect in checking a spike in the inflation rate for the period under study.
4.6.3 Monetary policy rate has no significant effect in checking a spike in the inflation rate.
4.6.4 The Treasury bills rate does not have a significant effect in restraining an increase in the inflation rate.
4.7 Discussion of Findings
4.7.1 Money Supply (MS)
4.7.2 Exchange Rate (EXR)
4.7.3 Monetary Policy Rate (MPR)
4.7.4 Treasury bill Rate (TBR)
CHAPTER V SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1 Summary of findings
5.2 Conclusion
5.3 Contribution to knowledge
5.4 Recommendations
5.4.1 For further studies
5.5 Limitations of the Study
Research Objectives and Themes
The primary aim of this research is to investigate the effectiveness of monetary policy tools adopted by the Central Bank of Nigeria (CBN) in curbing inflation and maintaining macroeconomic stability within Nigeria from 2009 to 2014. The study addresses whether specific policy variables have a significant individual impact and whether their combined effect significantly influences the inflation rate.
- Effectiveness of monetary policy variables on inflation in Nigeria.
- Analysis of monetary targeting regimes and their impact on price stability.
- Evaluation of short-term vs. long-term macroeconomic stabilization tools.
- Quantitative assessment of the impact of interest rates, money supply, and exchange rates on price levels.
Excerpt from the Book
2.2.3 The Structuralist's View of Inflation
The structuralists' approach was developed mainly in Latin America (Harberger, 1963) where a study showed that though money supply may increase along with price level, yet that money supply increase is only a response to inflation rather than initiating it. They felt the cause of rising prices is due to the pressure of economic growth on an underdeveloped social and economic structure like Nigeria. Wachter (1979) identified agriculture, foreign trade and government sectors as being regarded as suffering from institutional rigidity that cause prices to rise with economic development. The structural factor that was identified as applicable to Chile can also be applicable to Nigeria and that is a weak agricultural sector. The structuralists' were able to identify some areas of analysis in terms of the causes of inflation as regards their assessment as being a structurally induced phenomenon: (i)Agricultural Commodities, (ii) Wage Increase, (iii) Import Substitution,(iv)Tax System, (v) Money Supply.
(i)Agricultural Commodities In Nigeria, much of the harvest is lost to spoilage due to poor storage facilities. Precisely it is reported that 40 percent of post harvest losses, which has led to an unprecedented reduction in food production occurs in Nigeria (Patrick, 2013 and Mada, Hussaini, Medugu & Adams 2014). Hence, the domestic supply of these commodities is inelastic. Thus, when demand for these commodities rises, the supply being inelastic leads to an increase in the prices of agricultural goods. We can clearly deduce that since supply does not increase at a proportionate rate with the observed price increases as a result of the aforementioned post-harvest losses, poor storage facilities, etc., the next available option for the government in order to meet the increased demand is to resort to importation of these agricultural produce. As the prices of the agricultural commodities imported into the country are relatively higher than those of the domestically produced goods, the prices of the domestic goods tend to rise. The increased importation results in an increased demand for foreign exchange and adds pressure to the domestic currency.
Summary of Chapters
CHAPTER I INTRODUCTION: This chapter introduces the research context, outlines the problem of inflationary pressures in Nigeria, and defines the specific research objectives and hypotheses.
CHAPTER II REVIEW OF RELATED LITERATURE: This section reviews existing theories on inflation—including structuralist and monetarist views—and analyzes previous empirical studies regarding monetary policy tools and macroeconomic stability.
CHAPTER III METHODOLOGY: This chapter details the research design, data sources, and the econometric models (including OLS and ECM) used to quantify the relationship between monetary policy variables and inflation.
CHAPTER IV DATA PRESENTATION, ANALYSIS OF RESULT AND DISCUSSION: This chapter presents the empirical results, including unit root and cointegration tests, and provides an in-depth analysis of how specific monetary policy variables have impacted inflation in Nigeria.
CHAPTER V SUMMARY, CONCLUSION AND RECOMMENDATIONS: This final chapter summarizes the research findings, offers conclusions on the effectiveness of the CBN's monetary policy, and provides policy recommendations for further economic stability.
Keywords
Monetary Policy, Inflation, Central Bank of Nigeria, Money Supply, Exchange Rate, Treasury Bills Rate, Macroeconomic Stability, Econometrics, OLS, Cointegration, Price Stability, Monetary Targeting, Structuralism, Monetarism, Financial Stability.
Frequently Asked Questions
What is the fundamental focus of this thesis?
The thesis investigates the impact of various monetary policy tools utilized by the Central Bank of Nigeria on the nation's inflation rate during the period from 2009 to 2014.
Which central topics are addressed in the study?
The study centers on the effectiveness of monetary policy instruments, the relationship between money supply and price levels, exchange rate volatility, and the role of treasury bills in curbing inflation.
What is the primary research goal?
The primary objective is to determine whether the monetary policy variables adopted by the CBN had a statistically significant effect on inflation and to assess the combined impact of these tools on macroeconomic stability.
Which scientific methodology is applied?
The study employs a quasi-experimental, ex-post-facto research design using secondary monthly time series data. Analytical methods include the Ordinary Least Squares (OLS) regression and the Error Correction Model (ECM) to analyze short-run and long-run dynamics.
What themes are covered in the main body of the text?
The main body covers the conceptual and theoretical frameworks of inflation, various monetary policy strategies (like monetary and inflation targeting), the tools used by the CBN, and a rigorous empirical literature review.
Which keywords characterize this research?
The core keywords include Monetary Policy, Inflation, Central Bank of Nigeria, Money Supply, Exchange Rate, Macroeconomic Stability, and Econometrics.
How does the study explain the relationship between the Treasury Bills Rate and inflation?
The study finds that the Treasury Bills Rate (TBR) acts as a risk-free rate; an increase in this rate encourages investment in government securities rather than holding cash, thereby mopping up excess liquidity and exerting downward pressure on inflation.
What is the conclusion regarding the effectiveness of the Monetary Policy Rate (MPR)?
The empirical analysis reveals that while the MPR is the benchmark interest rate, it did not show a statistically significant effect on inflation at the 5% significance level during the study period, suggesting limitations in its role as a stand-alone nominal anchor.
- Citar trabajo
- Tonprebofa Okotori (Autor), 2017, Monetary Policy and its Effects on Inflation in Nigeria 2009 - 2014, Múnich, GRIN Verlag, https://www.grin.com/document/433182
