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Effectiveness of Monetary Policy in Reducing Inflation in Nigeria
(1970-2013

N+,-./0+/( ".I1I" &.
Senior 2esearc3 &fficer
Nigerian Educational 2esearc3 and Development -ouncil !N.E.2.D.-# !Sout3 +est 4one#( ) Jibowu Street
5aba( 1agos
olisanwac3u6wu7gmail.com

DI8IE( ,4/0,E9& -.2IS:&".E2
Sc3ool of Social Sciences(-ollege of Education ,gbor( Delta State

&9/D&. ,. "I/S(
Sc3ool of 8usiness Education( Department of ,ccounting Education(
;ederal -ollege of Education <:ec3nical= ,saba(P.M.B 1044.Asaba, Delta Stste
"iusogus17>a3oo.com

!"stract
:3e researc3 stud> e?amined t3e @Effectiveness of Aonetar> "olic> in reducing inflation in NigeriaBB( for t3e
period 1C7 - 212( emplo>ing t3e co integration and Error -orrection :ec3niDue of econometric anal>sis. :3e
data were sourced from t3e -entral 8an6 of Nigeria statistical bulletin of various >ears. :3e test of bot3 t3e /nit
root and co-integration revealed t3at t3ere is a long relations3ip between t3e variables w3ile t3e 9ranger
-ausalit> test revealed an un-directional relation between Aonetar> "olic> and inflation. .owever( t3e 'E-A
test revealed t3at inflation( 9ross Domestic "roduct !9D"# and e?c3ange rate are negativel> related and
positivel> related to broad mone> suppl> !A
2
# and domestic credit. :3e stud> is of t3e recommendation t3at
-entral 8an6 of Nigeria s3ould balance its control instruments to ac3ieve macroeconomic stabiliEation and
development( mone> suppl> s3ould be controlled to ensure 3ig3 emplo>ment( interest rates s3ould be liberaliEed
to control price and output movement( t3e societ> needs to be sanitiEed of corruption and in all. Aonetar> polic>
measures s3ould be designed in a wa> t3at en3ances t3e attainment of t3e macro-economic obFectives w3ile
c3ec6ing inflationar> trend.
#ey$ords%Effectiveness( Aonetar> "olic>( Inflation( Nigeria

Introduction
:3e socio-economic problems of t3e Nigerian econom> are traceable to inflationar> spiral. :3e persistent and
unacceptabl> 3ig3 rises in t3e general price level in an econom> resulting from general loss of purc3asing power
of t3e currenc> generates inflation. Inflationar> pressures assumed a dimension of serious concern in Nigeria
following t3e introduction of t3e structural adFustment programme !S,"# in 1C$G and it is presentl> a maFor
polic> concern for t3e monetar> aut3orities in t3e econom>. :3ree approac3es are used to measure inflation
t3at is( t3e deflator or gross national product !9N"#( t3e consumer price inde? !-"I# and t3e +3olesale "rice
Inde? !+"I#. :3e d>namic 3anges in t3ese two latter approac3es are regarded as direct measures of
inflation. In Nigeria( inflation rates are measured wit3 -"I w3ic3 is easil> and currentl> available on mont3l>(
Duarterl> and annual basis even t3oug3 it is t3e least efficient of t3e t3ree.
Since 1CGs( inflation 3as been accelerating in t3e Nigerian econom>. :3e inflation rates as measured
b> t3e c3anges in -"I averaged *. percent between 1CG and 1C7 t3at is wit3 t3e annual rates contained in t3e
single digit e?cept in 1CG7( during t3e Nigeria civil war w3en it was estimated to be 1. percent. Its pressures
were curtailed during t3e civil war !1CG7 to 1C7# because of t3e curtailment of income due to compulsor>
savings for t3e purpose of financing t3e war and ot3er restrictive economic( fiscal and political measures. :3e
reconstruction measures and repa>ment of war bonds after 1C7 resulted in t3e inFection of massive private and
public nominal e?penditures in to t3e countr>. :3is again pus3ed t3e inflation rates upward. :3is period also
witnessed s3arp increase in government revenue in foreign e?c3ange from oil e?ports. :3us t3e 1C7s witnessed
double-digit inflation rates w3ic3 averaged 1%.G percent. :3e rapid growt3 in government e?penditures financed
largel> b> t3e monetiEation of t3e petroleum foreign e?c3ange revenue e?acerbated e?pansionar> pressures on
mone> suppl> w3ose average annual growt3 rate for t3e 1C7s was )2.% percent compared wit3 7.% percent in
t3e 1CGs.
-redit to t3e domestic econom> from t3e ban6ing s>stem following t3e same pattern as t3e rates of
inflation and growt3 of mone> suppl>( accelerated from an average of %.7 percent in t3e 1CGs to 72.C percent
in t3e 1C7s and declined to 2%.2 percent in t3e 1C$s. :3ese developments appeared to 3ave led credence to t3e
monetaristsB t3eor> of inflation w3ic3 is a monetar> p3enomenon. :3is so called @acceleratingH inflation rates of
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t3e 1CGs and 1C7s was onl> a tip of t3e iceberg w3en compared wit3 t3e escalating and unabated trend
inflationar> pressures 3as assumed in t3e 1C$s and t3e intractable rates of t3e earl> 1CCs following t3e
deregulation of t3e Nigerian Econom> and unrestricted use of deficit financing as a tool to economic
management !Idemili( 1CC*#. :3e wage increase of 1% percent in 1CC) ,buba6arBs increase in 1CC$ and
&basanFoBs minimum wage coupled wit3 ominous adFustment of prices of petroleum products to reflect current
opportunit> costs ma> add anot3er dimension to inflationar> pressures in Nigeria. In addition( t3e deregulation of
downstream oil sector announced in &ctober( 1
st
( 2) b> &basanFo 3as +orsen t3e general price level in
Nigerian. ;inall>( t3e current plan to increase t3e minimum wage to N1$( per Nigeria wor6er in t3is
211 and subseDuent plan to remove oil subsid> will no doubt increase t3e rate of inflation. :3e oil glut from
1C$1( t3at resulted into balance of pa>ments deficits also led to foreign e?c3ange crises t3at necessitated various
measures of import restrictions. :3ese restrictions reduced raw materials for domestic production and spare
parts for mac3iner> operation. :3e resulted s3ortage of goods and services for local consumption spurred t3e
inflation rate to rise from 2I in 1C$1 to )CI in 1C$* !Itua( 2#. +it3 t3e adoption of t3e Structural
,dFustment "rogramme !S,"# in 1C$G( t3ere was a temporal reduction in fiscal deficit as government removed
subsides and reduced 3er involvement in t3e econom>. 8ut as t3e effects of structural adFustment programme
!S,"# polices gat3ered momentum( t3ere was a fall in growt3 rate of 9ross Domestic "roduct !9D"# in 1CC
from $.)I to 7.2I in 1C$* wit3 inflation rising from 2.% !1CC# to %7.I !1CC*#. ,gain( t3e devaluation of t3e
naira b> t3e -entral 8an6 of Nigeria !-8N# t3roug3 t3e second tier foreign e?c3ange mar6et !S;EA# led to a
fall in agricultural outputs as mac3ines and raw materials !mostl> imported# were out of reac3. :3e devaluation
reduced t3e aggregate real income and aggregate demand and at t3e same time raised t3e naira prices of goods
w3ose production depended 3eavil> on imported goods. :3us( unsold inventories accumulated in t3e face of
consumer revolt. In t3is circumstance( t3e national income !NI# fell and t3e price rose !&sagie( 1C$C#.
In 1CC%( inflation rate rose to 72.$I due to t3e increased lending rate( t3e polic> of guided deregulation
and t3e lagged impact of fiscal indiscipline. In addition to 3er contemporar> fiscal and monetar> policies( t3e
Nigerian government 3ad implemented various ot3er policies aimed at curbing inflation in t3e countr>. &ne of
t3e suc3 policies was t3e price polic> !price control# in 1C71 meant to control t3e soaring prices of essential
goods but abolis3ed in 1C$C for its ineffectiveness resulting from t3e severe s3ortages witnessed during t3e oil
glut in Nigeria !/du( 1C$C#. :3e Economic 2ecover> Emergenc> ;und of 1C$G w3ere one percent !1I# of
wor6ersB salaries was deducted mont3l> to build t3e funds was meant to curb inflationar> trends in Nigeria.
:3e> graduall> and greatl> reduced t3e purc3asing power of t3e wor6ing class. 8ut t3e polic> measures failed
as t3e prices of goods and t3e profits of corporate bodies were not controlled. :3erefore as prices rose( t3e
labour unions agitated for 3ig3er wages resulting in furt3er 3ig3er prices. !,gba( 1C$*#. Aore so( various
agricultural programmes li6e &peration ;eed t3e Nation and t3e 9reen revolution were implemented to boost
output to reduce prices of food items but >ielded minimal results.
Notwit3standing t3e various efforts of Nigerian government to curb t3eir inflationar> trends( inflation continued
to cause setbac6 in t3e growt3 rate in t3e standard of living of most Nigerians w3o are fi?ed income earners or
unemplo>ed !,g3a 1C$*# inflation 3as 3ad adverse effects on balance of pa>ments in Nigerian econom> 3ence
t3e fall in t3e growt3 rate of t3e 9ross Domestic "roduct !9D"# from 2G.$I !1C$1# to %.*I !2# and ).%I
!22# according to ;atu6asi !211#. 9iven constant set of prices toda>( a situation of relativel> muc3 mone>
c3asing t3e same bundle of goods and services tomorrow wit3 constant real wage income simpl> implies
adFustment in consumption patterns. :3e same bundles of goods and services consumed toda> cannot t3erefore
be consumed tomorrow. .ence( a decrease in consumption capacit> and standard of living is imminent. :3e
same can be said of producers. :oo muc3 mone> c3asing t3e same bundles of inputs tomorrow ignites an
adFustment process. :3e overall influence of t3is on t3e firm depends on its nature and t3e price elasticall> of
demand for 3er output. 9iven a firm t3at 3as an elastic demand for 3er output an attempt to neutraliEe t3e effect
of inflation b> a commitment increase in t3e prices of output often leads to greater loss in producer surplus(
profitabilit> and operations of t3e firm would t3erefore be greatl> impaired. Inflation causes uncertaint> about
future prices and ma6es it difficult for mone> to perform t3e functions of medium of e?c3ange and store of value.
It affects adversel> output( emplo>ment and income distribution !;a6i>esi( 1CC)( -8N 1CCG#. Indeed( inflation
is t3e leading cause of economic retardation and social and political unrest in less developed countries li6e
Nigeria !Emina( 2G#. ;urt3er( t3e effects of inflation includes continuous erosion of t3e purc3asing power of
mone>( ineDuitable distribution of income among earners( loss of social welfare due to price increases and
reduction of savings and investments !&6luna( 2$#. Inflation causes e?cessive relative price variabilit> and
misallocation of resources. It reduced real income of labour w3ere nominal wages are wit3out escalator clauses.
Inflation can be observed as an aggregate t3at 3as a continuous c3air reaction wit3 bot3 s>mbol and real
macroeconomic aggregates price increase in one sector of an econom> can easil> be transmitted to ot3er sectors.
,nd most often( t3e responsiveness of most sectors ma> not be entirel> proportionate. 9iven t3ese
interrelations3ip t3erefore an accurate evaluation of effects of government polic> measures on diverse sectors
and aggregates viE-a-viE inflationar> trend cannot be accuratel> ascertained. &ver t3e last few decades( 3ig3
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inflation 3as caused >ield on investment to decline w3ile government polic> obFectives is adversel> affected as
t3e real siEe of its budget s3rin6s wit3 rising inflation w3ic3 3ampered economic growt3. :3e bul6 of t3e
studies 3ave concentrated on 9ross Domestic "roduct( e?c3ange rate and mone> suppl> as causes of inflation.
&"'ective of t(e )tudy
:3e main obFective of t3is stud> is to determine to w3at e?tent monetar> polic> 3as been effective in
reducing inflation in Nigeria. .owever( t3e specific obFectives of t3e stud> areJ
!1# :o anal>Ee and e?plain t3e causes and d>namics of inflation in Nigeria since 1C7.
!2# :o e?amine t3e effect of monetar> polic> on inflation in Nigeria between 1C7-212.
Researc( *uestions
;rom t3e obFective of t3e stud>( one can deduce t3e following researc3 DuestionsJ
!1# +3at are t3e causes and d>namics of inflation in NigeriaK
!2# +3at are t3e effects of monetar> polic> on inflation in NigeriaK
!)# .ow effective are monetar> polic> in reducing inflation in NigeriaK
+y,ot(esis of t(e )tudy
;ollowing from t3e obFectives( we ma6e t3e following 3>pot3esis
.
o
J Aonetar> polic> in Nigeria 3as no significant impact in reducing inflation in Nigeria(
.
1J
Aonetar> polic> 3as a significant impact in reducing inflation in Nigeria
-(eoretical .ra/e$or0
:3e t3eoretical underpinning of t3is wor6 is centred on t3e Duantit> t3eor> of mone> as advanced b> ;riedman.
,ccording to ;riedman( !1C7G# t3e earliest t3eor> regarding t3e determination of price level and c3anges in price
level is t3e Duantit> t3eor> of mone>. :3is t3eor> in its simplest form postulates a direct proportional
relations3ip between mone> suppl> and price level. ,ccording to t3e t3eor>( if mone> suppl> were doubled(
prices would increase proportionatel>.
.owever( apart from mone> suppl>( ot3er monetar> polic> variables t3at affect inflation are e?c3ange rate and
real 9ross Domestic "roduct !&sa6we 1C$)( ,de>o6umu 1C$2 and San>o !2#. In t3e model specified b>
San>o !2#( mone> suppl>( e?c3ange rate and real 9ross Domestic "roduct were t3e variables t3at impacted
on inflation.
Model ),ecification
:3e model adopted in t3is stud> is a general specification t>pe drawing from t3e literature on inflation in
Nigeria. .ence( t3e model is based on t3e assumption t3at c3anges in price level depend on growt3 in real
income( mone> suppl>( and e?c3ange rate. &t3er factors include growt3 in domestic credit and government
e?penditure. :3usJ
";Lf !25( AS( EM2( D-( 9EM# ----------------------------------------1
+3ere(
";L inflation rate(
25Lreal income growt3(
ASLaggregate mone> suppl> growt3 rate
AM2Lnominal e?c3ange rate !/S NON#
D-Ldomestic credit growt3 rate(
9EMLgrowt3 in government e?penditure
:3e linearised version of eDuation 1 in natural log form is given asJ
In";La

Pa
1
In25 Pa
2
InAS Pa
)
InEM2 Pa
*
InD- Pa
%
In9EM P/i-------2
:3e error-correction specification incorporating t3e long run eDuilibrium relations3ip and s3ort-run d>namics
for t3e model is given asJ
In";Ld

Pd
1
In25 Pd
2
InAS Pd
)
InEM2 Pd
*
InD- Pd
%
In9EM Pd
G
In";-1 Pd
7
/-1 Pei---)
Met(od of !nalysis
Data collected for t3e stud> will be anal>Eed using t3e econometric anal>tical met3od. It is important to note
t3at conventional regression anal>sis wit3 time series data is conducted under t3e implicit assumption t3at t3e
variables present in t3e regression are stationar> over time. It 3as been pointed out in several studies t3at most
economic time series data are not stationar> over time( particularl> in t3eir levels( w3ile t3eir differences !first
or second# are usual stationar> !">nd>c6 and 2ubenfeld 1CC%#. :3is is Fustifiable since t3e studies in empirical
macroeconomics almost alwa>s involve trend variables and as suc3 t3e variables emplo>ed in t3is stud> w3ic3
includes 9D"( mone> suppl>( e?c3ange rate( domestic credit ( inflation are alwa>s non stationar> and
trending !9reene( 2*#. :3us( &rdinar> regression anal>sis is onl> meaningful w3en applied to stationar>
data. .owever( t3e ordinar> least sDuare is advantageous because of its 81/ propert>( i.e. t3e best( linear(
unbiased estimator .If t3e two different series are non-stationar> individuall>( but are co integrated among t3e
variables( we can( 3owever( appl> a 'ector Error correction Aec3anism !'E-A# w3ic3 will enable us to lin6
t3e long run and s3ort run relations3ips involved. ,not3er Fustification for adopting t3e co integration
tec3niDue wit3 its implied !'E-A# is t3at it 3as certain advantages over t3e traditional partial adFustment
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model t3at is( it is central to econometric modeling of integrated variable data consistenc> will be ac3ieved
given t3at t3e variables !9D"( mone> suppl>( e?c3ange rate( interest rate( inflation used in t3e stud> are
integrated of t3e same order( information is greatl> en3anced sine bot3 t3e s3ort-run c3anges in t3e variables
used in t3e researc3 and t3e long-run relations3ip will be included in t3e 'E-A specification and t3e log in
'E-A is not as restrictive as t3e traditional model !&luranti( 1CCG#.
1ata Presentation and !nalysis
Presentations of 2nit Root -est
,s a preliminar> step in t3e error correction modeling process( unit root test was conducted on t3e data. :3is
determined t3eir empirical c3aracteristics. :3e rationale for t3is is to guard against generating spurious results.
:3e tec3niDue used 3ere is t3e ,ugmented Dic6e>- ;uller :est !,D;#. :3e result is presented below in table 1
;rom t3e result in t3e table 1( e?cept for t3e rate of inflation( all t3e ot3er variables failed t3e stationar>
test. In ot3er words t3e variables t3at failed t3e test are trended and 3ence 3ave unit root. :3is conclusion is
informed b> t3e values of t3e ,D; statistic against t3eir critical values at C%I level. .owever t3e test statistics
of t3e first t3an t3eir critical values. :3us( t3e variables are said to be of order !1# as differencing once
eliminated t3e unit root and ensured stationar>.
3o integration -est
,s follow up to t3e unit root test( co integration test is used to determine t3e e?istence of long run relations3ip
between t3e dependent and independent variables. :3e test tec3niDue used 3ere is t3e Jo3ansen met3od .:3e
met3od test t3e null 3>pot3esis of no co integrating relations3ip. :3at is rL versus rQ . :3e test is presented
below.
:3e testBs results in t3e table 2 below suggest t3e e?istence of more t3an one co integrating relations3ip. :3e
conclusion is based on t3e statistics of t3e ma?imal eigenvalue and t3e trace of stoc3astic matri? against t3eir
critical values at C%I.
4ranger 3ausality -est
:3e ne?t is to present t3e estimated 'ector Error -orrection Aodel !'E-A#( but in line wit3 t3e obFectives of
t3is stud>( we first of all( present t3e 9ranger -ausalit> +ald :est result for inflation and ot3er monetar> polic>
indicators. :3e test is presented in t3e table below
:3e interpretations of t3e 9ranger -ausalit> results presented in table *.* are based on t3e c3i SDuare
statistics and probabilit> value. In statistics( for a variable to be significant( its -3i SDuare value must be in
e?cess of 2 in absolute value or t3e probabilit> value most be less t3an .%( w3en we use %I level of significant.
8ased on t3e decision rule stated above( t3e result s3ows t3at inflation rate 3as unidirectional 9ranger causalit>
relations3ip wit3 interest rate( no causal relation wit3 broad mone> suppl>( e?c3ange rate and 9D" respectivel>.
No 9ranger causal relation between gross domestic product and broad mone> suppl>. :3e onl> serious 9ranger
causal relations were s3own between interest rate and gross domestic product and broad mone> suppl>. ,lso all
t3e variable put toget3er( eac3 of t3ese variables 9ranger causes ot3ers. +it3 t3ese results we can conclude t3at
inflation rate onl> 3as a unidirectional 9ranger causal relation wit3 interest rate and t3e d>namism is presented
in t3e grap3 see appendi?.
!nalysis of t(e 5ector Error 3orrection Model Esti/ation
/nder t3is anal>sis !'E-A# we are not interpreting t3e coefficients of t3e variables( !t3is is because in ',2 and
'E-A t3e interest trul> is not on t3e coefficients of t3e variables# rat3er( we are interested on t3e impulse
response and t3e variance decomposition of t3e variables( t3oug3 t3e result of t3e estimation of 'E-A is
presented in table *.% belowR
,gain( our interest 3ere is 3ow inflation 3as responded to t3e impulse of t3e monetar> polic> variables !broad
mone> suppl>( e?c3ange rate and interest rate and gross domestic product# selected for t3is stud>.
:3e result in t3e table s3ow t3at apart from t3e response of inflation rate to its impulse( ot3er monetar>
instrument s3ow no impulse to inflation at t3e current period( all t3e response of inflation rate were seen in lag 1
period. :3e following impulse S response grap3 s3owed more clearer pictures of t3e relations3ip of inflation rate
and ot3er monetar> polic> instruments. It s3ows t3at inflation is negativel> related wit3 gross domestic product
and e?c3ange rate( and positivel> related wit3 broad mone> suppl> and domestic credit.
In t3e variance decomposition result is carried out. :3e result s3ows 3ig3er decomposition rate in all t3e
variables e?cept between log of gross domestic product(
:3e grap3 s3ows t3e variance decomposition of monetar> polic> instrument in Nigeria. It is build on t3e concept
of confident interval( t3e results s3ows transitor> s3oc6 relations3ips among t3e variables unli6e t3e permanent
s3oc6s s3own in t3e first reported grap3s. :3ose wit3 smaller s3aded portion !e.g. e?c3ange rate and domestic
credit # presents cases of permanent s3oc6s( w3ile t3e larger s3aded portions !e.g.( logm2 and D-# presents
transitor> s3oc6 relations3ips.
Inter,retation of Result
In t3e first test carried out( all t3e variables were tested and found to be stationar> at t3eir first differences. :3is
can be seen from t3e values obtained. ;rom t3e test statistics w3ic3 were greater t3an t3at of t3e critical values
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at %I significant level. In t3e second test carried in t3e granger causalit> test carried out it was found t3at
inflation 3as a unidirectional causalit> wit3 t3e Domestic credit and also( all t3e variables put toget3er granger
cause one anot3er.
;inall>( in t3e 'E-A test( w3ere t3e impulse responses and variance decomposition of t3e variables were
determined( it was revealed t3at w3ile inflation was positivel> related to t3e domestic credit and mone> suppl> it
was negativel> related to real 9ross Domestic "roduct and E?c3ange rate. :3is is in line wit3 San>o !2#
findings.
1iscussion of .indings
Aone> suppl>( lag of e?c3ange rate and government e?penditure as admitted are positivel> associated wit3
inflation in Nigeria. :3e most profound impact is recorded b> contemporaneous e?c3ange rate variable. :3e
inflation rate rises as contemporaneous government e?penditure rises. :3ese results are consistent wit3 economic
t3eor>( w3ic3 posits t3e e?istence of a positive relations3ip between mone> suppl>( e?c3ange rate and
government e?penditure on one 3and and t3e rate of inflation on t3e ot3er 3and.
:3e e?c3ange rate in Nigeria 3as been depreciating over t3e >ears and it 3as e?erted a positive impact on t3e rate
of inflation in t3e econom>. :3e reason is apparent given t3e import dependence of productive unitsR especiall>
in t3e industrial sector ., depreciating e?c3ange rate in t3is instance 3as implications for cost of production and
cost of finis3ed goods in t3e mar6et. :3e findings suggest t3at it ta6es some time for its effect to manifest in t3e
rate of inflation.
9overnment e?penditure is found to be positivel> associated wit3 price inflation in Nigeria. ,gain t3is conforms
to t3e position of economic t3eor>. :3is is in line wit3 findings from various empirical results .Domestic credit
in Nigeria did not meet t3e be3avioral e?pectation because of t3e structural and administrative problems
involved in domestic credit policies in Nigeria.
3onclusion
:3is stud> assessed t3e effectiveness of monetar> polic> as reducing inflation tools in Nigeria. :3is anal>sis is
done using 'ector Error -orrection Aodel !'E-A# estimate. :3is assessment became crucial in view of t3e role
of monetar> aut3orit> in Nigeria( w3ic3 is anc3ored on t3e use of monetar> polic> t3at is usuall> targeted
towards t3e ac3ievement of full-emplo>ment eDuilibrium( rapid economic growt3( price stabilit>( and e?ternal
balance.
:3is stud> also s3own t3e effort of monetar> polic> at influencing t3e finance of government fiscal deficit
t3roug3 t3e determination of t3e inflation-ta? rate did not affect bot3 t3e rate of inflation and t3e real e?c3ange
rate( t3ereb> causing volatilit> in t3eir rates. ,nd finall> t3e stud> revealed t3at inflation affects volatilit> of its
own rate as well as t3e rate of real e?c3ange.
Policy Reco//endation
8ased on t3e findings of t3is stud>( t3e researc3er recommends t3e followingJ :3at t3e monetar> polic> in
Nigeria s3ould be set in suc3 a wa> t3at t3e obFective meant to be ac3ieved is well defined.
i# :3e cost of inflation-focused monetar> regimes s3ould be c3ec6ed( more t3an an>t3ing else. :3e cost of
inflation-focused monetar> regimes is to divert t3e attention of t3e some of t3e most 3ig3l> trained and s6illed
economists and polic> ma6ers in Nigeria awa> from t3e tas6s t3at previous generations of central ban6 too6 for
granted as being t3eir main FobJ to 3elp t3is countr> develop( to create Fobs( and to foster sociall> productive
economic growt3.
ii# It is alwa>s crucial for central ban6s to balance t3eir control instruments wit3 t3e crucial tas6 of
macroeconomic stabiliEation. &t3erwise bot3 stabiliEation and development will be lost.
iii# +e 3ave s3own t3at in t3e s3ort run( control of mone> suppl> ma> cause t3e attractor of actual
unemplo>ment because reducing inflation rate in an> econom> is also reducing emplo>ment due to t3e tradeoff
between inflation and emplo>ment. If t3ese conditions are not met( control of mone> suppl> and inflationar>
monetar> policies ma>( under certain conditions( be unable to adFust t3e econom> to t3e stable inflation
eDuilibrium in t3e s3ort run( but we 3ave argued t3at t3ese adFustment capacities ma> be as>mmetric( and
sometimes t3ese monetar> policies ma> be even be counterproductive.
iv# Interest rate in Nigeria s3ould be totall> liberaliEed if it is e?pected to be a strong monetar> polic>
instrument of price level and output movement. :3e forces of demand and suppl> s3ould be allowed to
determine its rate in Nigeria.
!vi# :o control inflation( t3ere s3ould be control of mone> suppl> b> wa> of reducing government fiscal
budgeting and societ> need to be sanitiEed ensuring fiscal discipline.
!vii# ,lso( government s3ould stimulate t3e productive capacit> of t3e econom> especiall> t3e agricultural
sector to increase food production so t3at prices will come down and conseDuentl> reduce inflation.

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:able1
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