Impact of Monetary Policy Instruments (Mpr, Ms2, Lr And Tbr) on Headline Inflation (Hi) in Nigeria: 2007-2019
Title
Impact of Monetary Policy Instruments (Mpr, Ms2, Lr And Tbr) on Headline Inflation (Hi) in Nigeria: 2007-2019
Authors
Gana Usman et al.,
Keywords
headline inflation | Nigeria
Publication Details
Vol: 8; No: 2; Jun 22 | ISSN: 2455-3921
Abstract
The study employed ARDL-ECM model to investigate the dynamic effects of monetary policy (liquidity ratio, treasury bill rate, monetary policy rate, and broad money supply) on headline inflation, in Nigeria for the period of 156 months; from January 2007 to December 2019. The data were sourced from CBN statistical bulletins and stationarity of the variables were carried out with ADF (Augmented Dickey Fuller) and PP (Phillips Perron). The long-run relationship among the variables was determined with ARDL bound test. The error correction term (ECM) shows that the headline inflation rate responds to the deviation from its long-run (steady) state, and it significantly adjusts to it. The error correction term is correctly signed, and it shows that about 77.3% of disequilibrium in the headline inflation rate due to one-time temporary shock is corrected within a month; this is a fast rate of adjustment. The findings revealed that the liquidity ratio had negative and insignificant immediate and long-run effects on the headline inflation and money supply rate had positive and significant immediate and long-run effects on the headline inflation rate in Nigeria. Also, monetary policy rate was found to reduce the headline inflation rate in the short-run only and treasury bill rate had positive and significant immediate and long-run effects on the headline inflation rate in Nigeria. Finally, the result shows that the money supply rate had the highest effect on the headline inflation rate in Nigeria. Therefore, it is recommended that MPR (Monetary Policy Rate) should be increased whenever there is inflationary pressure to make sure that the economy does not get overheated and the Central Bank can equally increase M2 (Broad Money Supply) to spur the economy when it is experiencing deflationary pressures.
