EMPIRICAL ANALYSIS OF THE IMPACT OF MONETARY POLICY ON INFLATION IN NIGERIA (1984-2014)

Résumé

This study investigates the impact of monetary policy on inflation in Nigeria from 1984- 2014 using annual time series data sourced from World Bank World Development Indicators, 2015. The study employed the use of descriptive statistics, ADF unit root test technique, co-integration, Vector Error Correction Mechanism test, Breusch-Godfrey Serial Correlation LM Test, : Heteroskedasticity Test and Ordinary Least Squares (OLS) multiple linear regression. The Johansen Co-integration test result revealed that there exist a long-run relationship among Inflation Rate, Broad Money Supply, Exchange Rate and Interest. The Vector Error Correction Mechanism test result revealed that for about 5.17% of short-run disequilibria or error is being corrected for annually. Ultimately, the OLS regression result revealed that Broad Money Supply and Interest Rate has negative impact on Inflation Rate while Exchange Rate had had positive impact on Inflation Rate in Nigeria during the period reviewed. Since it is established that Exchange Rate is a driving force in influencing Inflation rate in Nigeria, policy makers are therefore advised to make policy plans which will ensure a significant stabilization in exchange rate in the country to curb the menace of inflationary pressure on consumer good by discouraging import and encouraging export of merchandise which can help reduce the excessive demand for dollar by Nigerians which normally makes Naira to depreciate against dollar.