An Evaluation of Monetary Policy Instruments in Achieving Monetary Targets in Nigeria.


The study evaluates the impact of monetary policy instruments in achieving monetary policy targets in Nigeria.

The study used correlation co-efficient to evaluate monetary policy transmission mechanisms on monetary policy targets such interest rate, inflation rate and exchange rate.

The findings of the study show that monetary policy tools have not been effective in achieving monetary policy targets.

The researcher attributes this to frequent changes in monetary policy and the level of uncertainty of the Nigerian economy as shown in the review of monetary policies in Nigeria.

Based on the findings, the study, recommends for ensuring stable macroeconomic environment, promotion of healthy and competitive financial system, the need to bolster the technical competence of CBN among others.



  • Background of the Study 1
  • Statement of Problem 2
  • objective of the Study 2
  • Research Questions 3
  • Research Hypotheses 3
  • Scope of the study 3
  • Significance of the study 4
  • Limitation of the study 4

References            6


  • Monetary policy and Economic schools 7
  • Empirical literature 16
  • Stylized facts of inflation in Nigeria 19
    • Components and structure of Consumer Price Index 19
    • Institutional Framework and the Mandate of price stability 21
  • Relationship between Inflation and key Macroeconomic Variable 22
  • Trends in inflation and policy response in Nigeria 24
    • Definitions of variable 28
  • The Conceptual basis for Monetary Management 30
  • Appropriate Exchange rate 34
  • Interest rates 38
  • Achieving the trinity 44

References          49


  • Research Design 53
  • Sources of Data 53
  • Method of Data Analysis and Technique for Analysis 53

References        54


  • Introduction 55
  • Data Presentation 55
  • Data Analysis 62
  • Test of Hypothesis 63


  • Summary of Findings 66
  • Conclusion 66
  • Recommendation 67

Bibliography            69


1.1 Background of the Study

Because money can affect many economic variables that are important to the well being of any economy, politicians and policy makers throughout the world care about the conduct of monetary policy- that is -the management of inflation rates, exchange rates and interest rates (Cukierman, Webb and Neyapti, 1992).

The institution responsible for the conduct of a country’s monetary policy is the Central Bank. Monetary policy involves changes in the money supply or the choice central banks make regarding the money supply (Essien, 2005).

According to Essien (2002), it is how the monetary authorities choose to regulate and control the value, supply and cost of money in the economy in consonance with the expected level of economic activity.

In choosing how best to regulate the money supply, the Central Bank makes use of monetary policy instruments to influence certain variables to achieve some intermediate goals, which would eventually lead to the ultimate objectives.

The impacts of these policy instruments are translated to the economy through a process called transmission mechanism.

De-Brouwer and Ericsson (1995) stresses that, the channel of transmission can be through either quantities or prices. He however, added that the policy could be transmitted through quantities via the monetary or credit channels and through prices via the interest rate, exchange rates or asset prices.


Adamson, Y.K. (2000). “Structural Disequilibrium and Inflation in Nigeria: A Theoretical and Empirical Analysis”. Center for Economic Research on Africa. New Jersey 07043: Montelair State University, Upper Montclair.

Agenor, P. and Hoffmaister, A.W. (1997).“Money, Wages and Inflation in Middle- Income Developing Countries”. IMF Working Paper: WP/97/174.

Alesina, A and Summers, L.H. (1993). “Central Bank Independence and Macroeconomic Performance: Some Comparative Evidence”. Journal of Money, Credit and Banking, Volume 25, Number 2, May.

Aron, J. and Muellbauer, J. (2000). “Inflation and Output Forecasting for south Africa: Monetary Transmission Implications”. Centre for the study of African Economices, CSAE Working Paper Series. 2000-23, December.

Asogu, J.O. (1991). “An Econometric Analysis of the Nature and Causes of Inflation in Nigeria”.Central Bank of Nigeria Economic and Financial Review, Volume 29, Number 3.

Business Day Newspaper (2009), vol.7, No.554, pp 1&52, Wednesday 18, February.

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