MONETARY POLICY INSTRUMENTS AND INFLATION RATE IN NIGERIA
Abstract
This study examined the effect of monetary policy tool on inflation in Nigeria and the specific
objectives are to: examine the effect of treasury bill rate on inflation, determine the effect of
liquidity ratio on inflation and evaluate the effect monetary policy rate on inflation in Nigeria.
Inflation (real GDP deflator) is the dependent variable and monetary policy (MPR), treasury bill
rate (TBR), loan to deposit ratio (LDT) and liquidity ratio (LDR) are the independent variables.
Time series ofthe variables are obtained from the Central Bank of Nigeria statistical bulletin 1981
to 2022. Unit root test was carried out on the variables and the results showed that the variables
are integrated at order one 1(1) and order two 1(2). Consequently, Toda-Yamamoto Causality
(Block Exogeneity Wald) test was adopted to test for causality among the variables in the model.
From the result and findings, the study concluded that traditional monetary policy tools are not
effectiveness in managing inflation in Nigeria. The study recommended that government
diversifies monetary policy tools by implementing or enhancing alternative monetary policy tools,
such as interest rate corridors, unconventional measures like quantitative easing or targeted lending
programs in Nigeria.
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