Monetary Policy A Catalyst for Inflation and Booster for Economic Growth; Evidence from Nigeria
Abstract
Monetary policy is all about price stability which influences other economic indicators like, purchasing power parity, exchange rate, interest rate, level of income, availability of resources, standard and efficient distribution of goods and services. This study examines the degree to which the central Bank of Nigeria’s monetary policy is effective to controlling inflation in the economy. The study made use of time series data on monetary policy variables (narrow money supply, broad money supply, exchange rate, interest rate and monetary policy rate), inflation rate and nominal gross domestic product over a time period ranging from 1990 to 2021. The data were all sourced from the Central Bank of Nigeria statistical bulletin. The data were analyzed using the Johansen Cointegration test and the Vector Error Correction Mechanism. Findings revealed that inflation has a positive but insignificant effect on economic growth in Nigeria. This indicates that higher inflation rates have led to higher rate of economic growth on the long-run. Interest rate was found to negatively and significantly affect economic growth in Nigeria on the long-run. Higher interest rate discourages demand for loans for investment purposes and this has a crippling and contractionary effect on the economic productivity of the country. The study recommends that monetary authorities should adopt expansionary policies to ensure adequate stock of money is available for transactions and investment purposes which boost economic growth on the long-run.
Keywords
Monetary policy, Purchasing power parity, Interest rate, Narrow money supply, Broad money supply, Inflation rate.
Citations
IRE Journals:
Anachedo Chima Kenneth , Obi-Nwosu Ogochukwu Victoria , Okeke Ijeoma Chinwe , Ubah, Chimarume Blessing
"Monetary Policy A Catalyst for Inflation and Booster for Economic Growth; Evidence from Nigeria" Iconic Research And Engineering Journals Volume 6 Issue 11 2023 Page 423-433
IEEE:
Anachedo Chima Kenneth , Obi-Nwosu Ogochukwu Victoria , Okeke Ijeoma Chinwe , Ubah, Chimarume Blessing
"Monetary Policy A Catalyst for Inflation and Booster for Economic Growth; Evidence from Nigeria" Iconic Research And Engineering Journals, 6(11)
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