MONETARY POLICY AS AN INSTRUMENT OF ECONOMIC STABILIZATION.

ABSTRACT

This research work studied Monetary Policy as an instrument of Economic stabilization between 1980 to 2015. Monetary policy deals with money supply, liquidity ratio and monetary policy rate and is often administered by central bank and has direct impact on the asset market. Stabilization measure on the economy is to introduce financial system to control the economy. In general, monetary policy refers to the combination of measures designed to regulate the value, supply and cost of money in an economy. The study, reviewed relevant literatures and theories related to the subject matter. The model used in this study is INFLATION as a function of MONEY SUPPLY (M2), LIQUIDITY RATIO (LQR), and MONETARY POLICY RATE (MPR). The methodology used is the popular ordinary least square estimating technique. The unit test showed INF, MPR, LQR became stationary at first difference and M2 became stationary at second difference. This research found there is a negative relationship between monetary policy and economic stabilization. Based on the empirical research, recommendations are made on how best to improve the relevance of monetary policy to economic stabilization and how to boost the role of monetary policy on economic stabilization.