MONETARY POLICY INSTRUMENTS AND PRICE STABILITY IN NIGERIA: AN ARDL BOUND TESTING APPROACH

Abstract

This study examines the impact of monetary policy on price stability in Nigeria from 1986 to 2018.The cash reserve ratio, liquidity ratio, exchange rate, money supply and import of goods and services were the monetary policy variables used while inflation consumer prices was the variable used to measure price stability. For this study, secondary time series data which was obtained from the CBN Statistical Bulletin 2018 and WDI were adopted and the Auto-Regressive Distributed Lag (ARDL) model was employed after conducting a diagnosis test. The results of the analysis showed that of all the monetary policy instruments used; only cash reserve ratio had a positive and significant effect in ensuring price stability. Liquidity ratio, exchange rate, and money supply negatively and insignificantly impacted on price instability, while import of goods and services was positive though insignificant for the period examined. Based on the results, it is therefore recommended that indirect monetary policy should continue to be used to bring consumer prices to a reasonable low level so as to strengthen the purchasing power of the Naira, which will eventually reduce; unemployment rate, interest rate, inflation rate, arbitrary redistribution of wealth and income, and consequently lead to economic growth and external viability.