ABSTRACT
This study is to examine the role of
monetary policy in achieving price stability in Nigerian economy and the
objectives are as follows; to examine the effectiveness of interest
rate in achieving price stability in Nigerian economy and also to
examine the effectiveness of money supply in achieving price stability.
The method applied in analyzing data for
this work are based on statistical at descriptive methods of analysis.
(regression analysis was used to analyses the respondents opinion. The
finding is that there is significant relationship interest rate and
inflation.
Finally, a review of the Nigerian
experience in monetary management shows that the interventionist policy
stance dominated monetary management in the first two and half decades
after which an era of liberalization and deregulation of financial
sector followed. Only a sustained stable macroeconomic environment and a
sound vibrant financial system can propel the economy to achieve her
millennium development goals.
TABLE OF CONTENTS
PAGES
Title Page
Certification
Dedication
Acknowledgement
Abstract
CHAPTER ONE
1.0 Introduction
1.1 Statement of the Problem
1.2 Aim and Objectives of the Study
1.3 Research Questions
1.4 Significance of the Study
1.6 Research Methodology
1. 6. Model Specifications
1.8 Scope of the Study
1.9 Limitation of the Study
1.10 definition of Terms
1.11 Organization of the Study References
CHAPTER TWO: LITERATURE REVIEW
2.1 Introduction
2.2 Definition of Monetary Policy
2.2.1 Objectives of the Monetary Policy
2.3 Definition of Price Stability
2.4 Definition and Determinants
2.5 Inflation
2.5.1 Causes of Inflation in Nigeria
2.5.2 Effect of Inflation on the Economy
2.5.3 Inflation Targeting a Monetary Policy Framework for
Achieving Price Stability in Nigeria
2.5.4 Components for Designing Inflation Targeting Strategy
2.5.5 Necessary Conditions for Inflation Targeting in Nigeria
2.6 Benefits of Price Stability
2.7 Shortcomings of Price Stability
2.8 Definition of Economic Growth
2.9 Effect of Monetary Policy
References
CHAPTER THREE: HISTORICAL BACKGROUND, DEVELOPMENT
AND PERFORMANCE OF THE MONETARY POLICY IN NIGERIA
3.1 History of Monetary Policy
3.2 Overview of Monetary Policy in Nigeria
3.3 Monetary Policy in Nigeria Since 2001-2010
References
CHAPTER FOUR: RESEARCH METHODOLOGY, DATA ANALYSIS AND INTERPRETATION OF RESULTS
4.0 Introduction
4.1 Research Methodology
4.1.1 Sources of Data
4.1.2 Scope of the Study
4.1.4 Model Specification
4.1.5 Estimation of the Model
4.1.6 Various Statistical Tests Used
4.2 Data Analysis
4.2.1 Regression Results for Model
4.2.2 Regression Results for Model
CHAPTER FIVE: SUMMARY, FINDING, RECOMMENDATIONS AND CONCLUSION
5.1 Summary
5.2 Findings
5.3 Recommendations
5.4 Conclusion
References
CHAPTER ONE
1.0 INTRODUCTION
Research on effectiveness of monetary
policy on economic variables in Nigerian economy has for long been of
interest to economist and policy makers however, studies have been
carried out on certain aspects of economic variables. These studied are
meager and in any case, not covering the effectiveness of monetary
policy of price stability in Nigeria, which now necessitated this
research work.
An issue which has occupied the minds of
government for decades is the effectiveness of monetary policy in
influencing price stability despite the lack of consensus among
economist on how it actually works and on magnitude of its effect on the
economy, there is a remarkable strong agreement that monetary policy
has some measure of effect on the economy (Udegbunam 2003).
Monetary policy refers to the
combination of measures designed to regulate the value, supply and cost
of money in an economy, in consonance with the level of economic
activity. It can be described as the art of controlling the direction
and movement of monetary and credit; facilities in pursuance of stable
price and economic growth In an economy (CBN, 1992).
In modern economics, the central bank is
the authority with the mandate to manipulating monetary policy
instruments to achieving desired macroeconomic objectives.
However, the primary objective of
monetary policy cuts across the mandates of most central banks is the
maintenance of price stability which is imperative to the attainment of
sustainable growth is the focus of these objectives which is specified
in the CBN ACT of 1958.
- Issue of legal currency notes and coins Maintain Nigeria external reserve
- To safeguard the international value of the legal tender currency.
- Promoting monetary stability and a sound financial system.
- Act as banker and financial adviser to the federal government.
- Act as a lender of last resort.
The pursuit of price stability
invariably implies the indirect pursuit of other objectives such as
economic growth which can only take place under conditions of price
stability and allocative efficiency of the financial markets, since
inflation is generally considered as purely a monetary phenomenon with
significant cost to the economy. The primary goal of monetary policy is
to ensure that money supply is at a level that is consistent with the
growth target of real income such that non- inflationary growth will be
ensured. The pursuit of price stability through monetary policy
therefore encompasses all main areas in which the Central Bank can
contribute towards stabilizing the macroeconomic environment of the
country.
1.1 STATEMENT OF THE PROBLEM
Central bank of Nigeria (CBN) has been
the sole player in using monetary policy in achieving price stability.
Central bank of Nigeria has failed to achieve price stability due to the
following:
- Lack of consensus on what
constitute price stability. For example, Shiratsuka (1997) provides
three definition of price stability as follows:
- A tolerable target for inflation rate (if achieved assumes the attainment of the price stability objective)
- Sustainable growth underprice
'stability, implying price stability is achieved at the inflation crate
consistent with sustainable economic growth.
- Stability of inflation expectation
- Moreso, political instability
has also been attributed to one of the problem confronting central bank
of Nigeria (CBN) in achieving price stability through the use of
monetary policy.
1.2 AIM AND OBJECTIVES OF THE STUDY
The aim of this study is to carry out an
indepth assessment of the effectiveness of monetary policy in achieving
price stability in Nigeria economy. To this end, this study will
investigate whether monetary policy will help in achieving price
stability.
The objectives of the study are as follows:
(a) To examine the effectiveness of interest rate In achieving price stability in Nigeria economy
(b) To examine the effectiveness of money supply In achieving price stability in Nigeria economy.
1.3 RESEARCH QUESTIONS
(i) What will be the effectiveness of interest rate ill achieving price stability in Nigeria economy?
(ii) Will money supply affect price stability ill Nigeria economy?
(iii) What will be the effectiveness of interest rate and money supply in achieving price stability in Nigeria economy?
(iv) What will be the effectiveness of interest rate and money supply in achieving price stability in Nigeria economy?
(v) Will inflationary rate affect the economic growth of Nigeria economy?
(vi) What will be the effectiveness of interest rate and money supply in achieving economic growth in Nigeria economy?
1.4 SIGNIFICANCE OF THE STUDY
To assess the effectiveness of monetary
policy on price stability in Nigeria economy. This study will reflect
the effectiveness of monetary policy towards economic growth.
The benefits to be derived from this
study will assist the policy makers to fine-tune strategies regarding
monetary policy, how the money should be circulated in economy. Other
people that also benefits from this research work include instructors,
friends and colleagues in the field of studies etc.
1.5 RESEARCH HYPOTHESIS
The research hypothesis are as follows:
Hypothesis 1
Ho: There is no significant difference between interest rate and inflation rate.
HA: There is significance difference between interest rate and inflation rate.
Hypothesis 2
Ho: There is no significance difference between money supply and inflation mate.
HA: There is significance difference between money supply and inflation rate.
Hypothesis 3
Ho: There is no significance difference between interest rate, money supply and inflation rate.
HA: There is significance difference between interest rate, money supply and inflation rate.
1.6 RESEARCH METHODOLOGY
The research methodology is specifically
designed to carry out effectiveness of monetary policy on price
stability in Nigeria economy for the past seventeen years (17 yrs):
1993-2009.
In this regard, the sources of data are
basically based on secondary sources of data collections. 'These are in
the form of dailies, statistical research findings such as: Central Bank
of Nigeria (CBN) review etc while regression (OLS) will be used to
solve the collection data. The methodology shall be descriptive and
qualitative.
1.6.1 MODEL SPECIFICATIONS
Model I
Inf Rat = ?o + 1 INTt + Et
INFt = Inflation Rate
Where ?o - Constant
?1 = Parameter of the Equation
INTt = Interest Rate
Et = Error of Stochastic Term in Time T
1.8 SCOPE OF THE STUDY
The scope of the study shall cover the
effectiveness of monetary policy in achieving price stability in
Nigerian economy development during the period 1993-2009.
1.9 LIMITATION OF THE STUDY
The perceived limitations are as follows:
(a] The possibility of getting the relevant data and the information for the purpose of the research work.
(b) The availability of fund for the research work is another constraint.
(c) Time constraint is another
limitation as the research work is combined with the academic work in
school as a final year student.
1.9 DEFINITION OF TERMS
Money: It is anything that is general acceptable as a medium of exchange, store of value.
Monetary policy: Is an instrument that Central Bank of Nigeria uses to control the circulation and money supply in an economy.
Inflation: It is persistence Increase In price of goods and services.
Stability: When there is a fixed price for particular goods and services.
1.10 ORGANIZATION OF THE STUDY
This study will be structured into five
(5) chapters. Chapter one will examine the introductory aspect of the
study containing the background of the study, statement of problem, aim
and objectives, research questions, research hypothesis, research
methodology, significance of the study, limitations of the study and
organization of the study. Chapter two will contain the review of
relevant literatures. Chapter three will focus on the structural
analysis. Chapter four will examine the data analysis, presentation and
interpretation of the results findings. Chapter five will focus on the
summary, findings, recommendations and conclusion then the references.