Monetary Policy Approach to Headline Inflation Control in Nigeria: Evidence from 1985-2018

Amalu Henry Ikechukwu, Agbasi Lucy O., Olife Loenard U. and Ujam Oluchukwu Juliet
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Amalu Henry Ikechukwu: Department of Banking and Finance, University of Nigeria Nsukka, Enugu State, Nigeria
Agbasi Lucy O.: Department of Banking and Finance, University of Nigeria Nsukka, Enugu State, Nigeria
Olife Loenard U.: Department of Banking and Finance, University of Nigeria Nsukka, Enugu State, Nigeria
Ujam Oluchukwu Juliet: Department of Accountancy, Federal Polytechnic Oko, Anambra State, Nigeria

International Journal of Research and Scientific Innovation, 2020, vol. 7, issue 7, 187-194

Abstract: Monetary policy remains one of the channels for controlling high inflation. Effective control of headline inflation using monetary policy measures depends on the degree of relationship that exists between the variables. In the light of this, the paper explores the relation between monetary policy and headline inflation with the aim of determining the effectiveness of monetary policy measures in curbing high headline inflation in Nigeria. The series employed are stationary at level and first difference respectively, after testing them for unit roots using Phillips-Perron and Zivot-Andrews structural break consistent unit root tests. The study adopts the Autoregressive distributed lag (ARDL) approach, Bound test, and Error Correction Model (ECM) for empirical analyses of the variables. The paper establishes the following: (a) exchange rate and headline inflation share strong negative relation both in the short-term and long-term; (b) Treasury bill rate exerts statistically significant positive influence on inflation in the long-run; and (c) strong interaction exists between deposit rate and headline inflation in the short-run. We also find cointegrating relationships between monetary policy and headline inflation in Nigeria.

Date: 2020
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