Impact of monetary policy on price stability in Nigeria: Empirical assessment
DOI:
https://doi.org/10.60787/mjrdp.vol15no2.189Keywords:
Monetary policy, Price Stability, Consumer Price Index, ARDL, Granger causality, NigeriaAbstract
Price stability is crucial for economic growth, yet it has remained a challenge in Nigeria despite ongoing monetary policy interventions by the Central Bank of Nigeria. This study examines the short- and long-run effects of monetary policy on price stability in Nigeria from 1981 to 2023. Using the Consumer Price Index (CPI) as a proxy for price stability, the analysis incorporates the broad money supply (% of GDP), the real interest rate, the real exchange rate, and the crude oil price as control variables. Augmented Dickey-Fuller tests indicate mixed-order integration, supporting the use of the Autoregressive Distributive Lag (ARDL) bounds testing approach. The ARDL model identifies a significant long-run relationship, with an error-correction term of -0.76, indicating that 76% of deviations from long-term equilibrium are corrected annually. In the long run, broad money supply positively influences CPI, with a 1% increase in money supply raising CPI by 1.75%, while higher real interest rates and real exchange rate appreciation reduce CPI by 1.31% and 8.26%, respectively. Crude oil prices negatively affect CPI, with a 1% increase reducing consumer prices by 17.81%. Granger causality tests indicate unidirectional relationships from CPI to money supply, from crude oil price to money supply, from real interest rate to real exchange rate, and from crude oil price to real interest rate. The findings suggest that while monetary policy instruments significantly affect price stability, high autonomous price levels indicate that monetary policy alone cannot sustain it. Coordinated monetary, fiscal, and structural policy interventions are recommended to achieve effective price stabilisation in Nigeria.Downloads
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