The Impact of Monetary Policy on Nigeria's Macroeconomic Stability (1970 - 2009)

The objective of this study was to investigate empirically the impact of monetary policy on Nigeria's macroeconomic stability between 1970 and 2009. The study differs from others by viewing macroeconomic stability in terms of price stability. In order to reduce the problem of stationarity usually associated with time series data, we adopted the Co-integration and Error Correction Modeling (ECM) techniques. The results revealed that only 47 percent of the total variations in the model are caused by the monetary policy variables-Money Supply (MOS), Minimum Rediscount Rate (MRR) and Treasury Bills (TRB) at the long-run. The coefficient of the ECM is rightly signed and impacts on inflation in Nigeria while the current and past (lag 2) MOS is wrongly signed as well as not impacting inflation. Again, Past (lag 2) MRR impacts on inflation while current and past (lag 1) TRB do not. The policy implication arising from the findings is that the monetary policy tools showed a mix result in terms of their impact on inflation in Nigeria. Therefore, it is suggested that Nigeria should adopt macroeconomic mix of monetary, fiscal and exchange rate policies in managing inflation thereby promoting price stability which ultimately leads to macroeconomic stability.