Monetary Policy and Inflation Dynamics in Nigeria: Implications for Policy Formulation

Abstract

The study examines the effects of monetary policy on inflation in Nigeria, using data covering the period 1986 to 2023. It employed the Vector Auto regression (VAR) model, using EViews 12 econometric software for the estimation. The results show that monetary policy rate (MPR) and money supply have positive effects on inflation whereas, interest rate and liquidity ratio exert negative effect on inflation in Nigeria with liquidity ratio being statistically significant. The study therefore, stresses the need for the monetary authority to take charge of the cash movements by maintaining stable monetary policy rate that would stabilize interest rate and encourage borrowings from financial institutions in order to keep money supply at moderate state to discourage inflation.