Impact of Monetary Policy on Inflation Targeting in Nigeria (1986 – 2022)

Abstract

The obstacles encountered in establishing inflation benchmarks alongside other monetary indicators have not been conducive to maintaining consistent price levels and broad economic stability in Nigeria. Consequently, this research delved into the effects of monetary strategy on inflation benchmarks in Nigeria. The research utilized the Autoregressive Distributed Lag (ARDL) approach to analyze time-bound data. The findings revealed that both the volume of currency in circulation and the monetary policy rate demonstrated a negative yet substantial influence in the immediate term. Conversely, over a prolonged period, these elements exhibited a negative but statistically inconsequential effect on achieving the set inflation benchmarks in Nigeria. In light of these findings, the study suggests that amplifying the circulation of currency in the short term will likely keep the targeted inflation rate largely unaffected. Furthermore, it is advised that the government should fully implement an inflation benchmarking policy. Additionally, it is recommended that the government should regulate the monetary policy rate to prevent a further increase in joblessness. Lastly, the study underscores the importance of fostering effective administration to establish a trustworthy and stable macroeconomic framework.