ABSTRACT

Motivated by the rising inflation in Nigeria, this study examined the impact of monetary policy and inflation in Nigeria from 1986 to 2016. The increasing inflation rate and its vices in Nigeria questions the effort and policies that have been made to combat it or the degree of its implementation, and therefore the need to examine the impact of monetary policy on inflation control. The study employed annual time series data using Error correction model and Johansen co-integration to ascertain the specific objectives of the study. The study employed data from CBN Statistical Bulletin, National Bureau of Statistics, and the World Bank indicators, Economic journals and articles. The findings of the study suggest that monetary policy rate and interest rate has a significant and positive impact on inflation while broad money supply has a positive inelastic relationship with inflation and liquidity ratio has a negative inelastic relationship with inflation. Also the results show that there exist a long run relationship between the variables in the researcher’s model and inflation. Finally the results suggest that an increase in MS2, MPR and interest rate causes an increase in inflation, while an increase in liquidity ratio causes a decrease in inflation. The study therefore recommends that policies be formulated to exploit the impact of monetary policy on inflation control in Nigeria in an attempt to reduce the inflation rate.