EXPLORING MONETARY POLICY TOOLS AND DOMESTIC PRICE DYNAMICS IN NIGERIA: AN AUTO-REGRESSIVE DISTRIBUTIVE LAG APPROACH
Abstract
This study investigates the impact of monetary policy tools on domestic price dynamics in Nigeria from 1990 to 2022. Data for the study were obtained from the Central Bank of Nigeria data source and the World Bank’s World Development Indicators 2022.Monetray policy rate, broad money supply, cash reserve ratio, Treasury bill rate, and liquidity ratio are adopted to proxy monetary policy tools while commodity price index is employed to capture domestic price dynamics. The adopted the Augmented Dickey Fuller approach and Auto-Regressive Distributive lag test to ensure the stationary status of the variables and analyse the data. Result from the bounds test showed that monetary policy tools exert a long term influence on domestic price dynamics. Further findings that monetary policy rate has a positive and significant relationship with commodity price index in the previous and second year pear period while broad money supply exert a negative but significant relationship with commodity price index in the previous and second year period of the short-run. However, Treasury bill rate exhibits a negative but significant effect on commodity price index in the long term as well as the most current year of the long-run. Similarly, liquidity ratio is negative with commodity price index but in the long term while cash reserve ratio is positive but insignificantly related with commodity price index. Hence, it is concluded that monetary policy tools had significant impact on commodity price in Nigeria. Thus, the need for suggesting amongst others that the central bank of Nigeria should consider maintaining the current policy rate or implementing gradual increase. This approach will continue to signal a contentment to price stability.
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Published in JOURNAL OF ACCOUNTING, FINANCE & MANAGEMENT DISCOVERY WUKARI
ISSN: 2714-2574
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