ABSTRACT
This study is to examine the role of
monetary policy in achieving price stability in Nigerian economy and the
objectives are as follows; to examine the effectiveness of interest rate in
achieving price stability in Nigerian economy and also to examine the effectiveness
of money supply in achieving price stability.
The method applied in analyzing data
for this work are based on statistical at descriptive methods of analysis.
(regression analysis was used to analyses the respondents opinion. The finding
is that there is significant relationship interest rate and inflation.
Finally, a review of the Nigerian
experience in monetary management shows that the interventionist policy stance
dominated monetary management in the first two and half decades after which an
era of liberalization and deregulation of financial sector followed. Only a
sustained stable macroeconomic environment and a sound vibrant financial system
can propel the economy to achieve her millennium development goals.
TABLE OF CONTENTS
PAGES
Title Page
Certification
Dedication
Acknowledgement
Abstract
CHAPTER ONE
1.0 Introduction
1.1 Statement
of the Problem
1.2 Aim
and Objectives of the Study
1.3 Research
Questions
1.4 Significance
of the Study
1.6 Research
Methodology
1. 6. Model Specifications
1.8 Scope
of the Study
1.9 Limitation
of the Study
1.10 definition
of Terms
1.11 Organization
of the Study References
CHAPTER TWO: LITERATURE REVIEW
2.1 Introduction
2.2 Definition
of Monetary Policy
2.2.1 Objectives
of the Monetary Policy
2.3 Definition
of Price Stability
2.4 Definition
and Determinants
2.5 Inflation
2.5.1 Causes
of Inflation in Nigeria
2.5.2 Effect
of Inflation on the Economy
2.5.3 Inflation
Targeting a Monetary Policy Framework for
Achieving Price Stability in Nigeria
2.5.4 Components
for Designing Inflation Targeting Strategy
2.5.5 Necessary
Conditions for Inflation Targeting in Nigeria
2.6 Benefits
of Price Stability
2.7 Shortcomings
of Price Stability
2.8 Definition
of Economic Growth
2.9 Effect
of Monetary Policy
References
CHAPTER THREE: HISTORICAL BACKGROUND, DEVELOPMENT
AND PERFORMANCE OF THE MONETARY POLICY IN NIGERIA
3.1 History
of Monetary Policy
3.2 Overview
of Monetary Policy in Nigeria
3.3 Monetary
Policy in Nigeria Since 2001-2010
References
CHAPTER FOUR: RESEARCH METHODOLOGY, DATA ANALYSIS AND
INTERPRETATION OF RESULTS
4.0 Introduction
4.1 Research
Methodology
4.1.1 Sources
of Data
4.1.2 Scope
of the Study
4.1.4 Model
Specification
4.1.5 Estimation
of the Model
4.1.6 Various
Statistical Tests Used
4.2 Data
Analysis
4.2.1 Regression
Results for Model
4.2.2 Regression
Results for Model
CHAPTER FIVE: SUMMARY, FINDING, RECOMMENDATIONS AND
CONCLUSION
5.1 Summary
5.2 Findings
5.3 Recommendations
5.4 Conclusion
References
CHAPTER ONE
1.0 INTRODUCTION
Research on effectiveness of monetary
policy on economic variables in Nigerian economy has for
long been of interest to economist and policy makers however, studies have been
carried out on certain aspects of economic variables. These studied are meager
and in any case, not covering the effectiveness of monetary policy of price
stability in Nigeria, which now necessitated this research work.
An issue which has occupied the minds
of government for decades is the effectiveness of monetary policy in
influencing price stability despite the lack of consensus among economist on
how it actually works and on magnitude of its effect on the economy, there is a
remarkable strong agreement that monetary policy has some measure of effect on
the economy (Udegbunam 2003).
Monetary policy refers to the
combination of measures designed to regulate the value, supply and cost of
money in an economy, in consonance with the level of economic activity. It can
be described as the art of controlling the direction and movement of monetary
and credit; facilities in pursuance of stable price and economic growth In an economy (CBN, 1992).
In modern economics, the central bank
is the authority with the mandate to manipulating monetary policy instruments
to achieving desired macroeconomic objectives.
However, the primary objective of
monetary policy cuts across the mandates of most central banks is the
maintenance of price stability which is imperative to the attainment of
sustainable growth is the focus of these objectives which is specified in the
CBN ACT of 1958.
- Issue of legal currency notes
and coins Maintain Nigeria external reserve
- To
safeguard the international value of the legal tender currency.
- Promoting
monetary stability and a sound financial system.
- Act
as banker and financial adviser to the federal government.
- Act
as a lender of last resort.
The pursuit of price stability
invariably implies the indirect pursuit of other objectives such as economic
growth which can only
take place under conditions of price stability and allocative efficiency of the
financial markets, since inflation is generally considered as purely a monetary
phenomenon with significant cost to the economy. The primary goal of monetary
policy is to ensure that money supply is at a level that is consistent with the
growth target of real income such that non- inflationary growth will be
ensured. The pursuit of price stability through monetary policy therefore
encompasses all main areas in which the Central Bank can contribute towards
stabilizing the macroeconomic environment of the country.
1.1 STATEMENT
OF THE PROBLEM
Central bank of Nigeria (CBN) has
been the sole player in using monetary policy in achieving price stability.
Central bank of Nigeria has failed to achieve price stability due to the
following:
- Lack of consensus on what
constitute price stability. For example, Shiratsuka (1997) provides three
definition of price stability as follows:
- A tolerable target for
inflation rate (if achieved assumes the attainment of the price stability
objective)
- Sustainable growth underprice
'stability, implying price stability is achieved at the inflation crate
consistent with sustainable economic growth.
- Stability
of inflation expectation
- Moreso, political instability
has also been attributed to one of the problem confronting central bank of
Nigeria (CBN) in achieving price stability through the use of monetary policy.
1.2 AIM
AND OBJECTIVES OF THE STUDY
The aim of this study is to carry out
an indepth assessment of the effectiveness of monetary policy in achieving
price stability in Nigeria economy. To this end, this study will investigate
whether monetary policy will help in achieving price stability.
The objectives of the study are as
follows:
(a) To examine the effectiveness
of interest rate In achieving price stability in Nigeria economy
(b) To examine the effectiveness of
money supply In achieving price stability in Nigeria economy.
1.3 RESEARCH
QUESTIONS
(i) What will be the effectiveness
of interest rate ill achieving price stability in Nigeria economy?
(ii) Will
money supply affect price stability ill Nigeria economy?
(iii) What will be the effectiveness
of interest rate and money supply in achieving price stability in Nigeria
economy?
(iv) What will be the effectiveness
of interest rate and money supply in achieving price stability in Nigeria
economy?
(v) Will inflationary rate affect
the economic growth of Nigeria economy?
(vi) What will be the effectiveness
of interest rate and money supply in achieving economic growth in Nigeria
economy?
1.4 SIGNIFICANCE
OF THE STUDY
To assess the effectiveness of
monetary policy on price stability in Nigeria economy. This study will reflect
the effectiveness of monetary policy towards economic growth.
The benefits to be derived from this
study will assist the policy makers to fine-tune strategies regarding monetary
policy, how the money should be circulated in economy. Other people that also
benefits from this research work include instructors, friends and colleagues in
the field of studies etc.
1.5 RESEARCH
HYPOTHESIS
The research hypothesis are as
follows:
Hypothesis 1
Ho: There is no
significant difference between interest rate and inflation rate.
HA: There is significance difference
between interest rate and inflation rate.
Hypothesis 2
Ho: There is no
significance difference between money supply and inflation mate.
HA: There is significance difference
between money supply and inflation rate.
Hypothesis 3
Ho: There is no
significance difference between interest rate, money supply and inflation rate.
HA: There is significance difference
between interest rate, money supply and inflation rate.
1.6 RESEARCH METHODOLOGY
The research methodology is
specifically designed to carry out effectiveness of monetary policy on price
stability in Nigeria economy for the past seventeen years (17 yrs): 1993-2009.
In this regard, the sources of data
are basically based on secondary sources of data collections. 'These are in the
form of dailies, statistical research findings such as: Central Bank of Nigeria
(CBN) review etc while regression (OLS) will be used to solve the collection
data. The methodology shall be descriptive and qualitative.
1.6.1 MODEL
SPECIFICATIONS
Model I
Inf Rat = βo + 1 INTt + Et
INFt = Inflation Rate
Where βo - Constant
β1 = Parameter of the Equation
INTt = Interest Rate
Et = Error of Stochastic Term in Time T
1.8 SCOPE OF THE STUDY
The scope of the study shall cover
the effectiveness of monetary policy in achieving price stability in Nigerian
economy development during the period 1993-2009.
1.9 LIMITATION OF THE STUDY
The perceived limitations are as
follows:
(a] The possibility of getting the
relevant data and the information for the purpose of the research work.
(b) The
availability of fund for the research work is another constraint.
(c) Time constraint is another
limitation as the research work is combined with the academic work in school as
a final year student.
1.9 DEFINITION OF TERMS
Money: It is anything that is general acceptable
as a medium of exchange, store of value.
Monetary policy: Is an instrument that Central Bank of
Nigeria uses to control the circulation and money supply in an economy.
Inflation:
It is persistence Increase In price of goods and services.
Stability: When there is a fixed price for
particular goods and services.
1.10 ORGANIZATION
OF THE STUDY
This study will be structured into
five (5) chapters. Chapter one will examine the introductory aspect of the
study containing the background of the study, statement of problem, aim and
objectives, research questions, research hypothesis, research methodology,
significance of the study, limitations of the study and organization of the
study. Chapter two will contain the review of relevant literature. Chapter
three will focus on the structural analysis. Chapter four will examine the data
analysis, presentation and interpretation of the results findings. Chapter five
will focus on the summary, findings, recommendations and conclusion then the
references.
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