Economics Project Topics

The Efficiency of Monetary Policy in Contribution Inflation in Nigeria

The Efficiency of Monetary Policy in Contribution Inflation in Nigeria

The Efficiency of Monetary Policy in Contribution Inflation in Nigeria

Chapter One


It is necessary to state the primary objective of this research having identified the ruling monetary policy instrument in Nigeria and some the economic objective that they are expected to influence.

These objectives include:

  1. to investigate the major causes of inflation in Nigeria during 1980s
  2. To investigate if the Nigeria monetary policy is efficient or not in the achievement of certain objectives of the economy and inflation control in particular.
  3. To see if the non-realization of the economic objective is due to chosen instrument or inappropriate application of the instrument.
  4. To recommend policy solution based on the above finding.

The policy recommendation based on the above findings will be used as a guide in the further application of monetary policies.



Monetary policy

Monetary policy is defined by the Central Bank of Nigeria (CBN) as combination of measures designed to regulate value supply and cost of money in an economy, in consonance with the level of economic activities. Odufalu, (1994) defined monetary policy as the combination of measures taken by monetary authorities (e.g. the CBN and the ministry of finance) to influence directly or indirectly both the supply of money and credit to the economy and the structure of interest rate for economic growth, price stability and balance of payment equilibrium. He added that the CBN is empowered by decree 25 of 1991 Act, to formulate and implement monetary policy in Nigeria, in consultation with the ministry of finance subject to the approval of the President. (Onyido, 1993) sums it up when he said that monetary policy is therefore applied to influence the availability and cost of credit in order to control the money supply policy. He generally describe the action taking by the Central Bank as using tools / instrument at its disposal to influence monetary conditions in particular, the quantity and supply of money in the macro-economic goods. These goals would normally include price stability, full employment, high economic growth rate and balance of payments equilibrium. The attainment of these goals will result into the country achieving both internal and external balance of trade and payment. The practice of monetary policy using tools / instruments to regulate the quantity of money supply to achieve stability in the economy is based on the premise that there is a stable relationship between the quantity of money supplied in an economy and economic activities. Even though, the way and manner with which the central bank regulates its money supply vary from place to place the approach can be divided into two main groups. The first group advocates that monetary policy should target price stability as its single important objectives. The other macro-economic goal agitates for due regulation of money supply and in extension in the control of persistent price increase to ensure sustainable and balance development in the economy.


Inflation is the circumstances where a persistence general prices of goods and services is rising on a sustained basis over a period of time in an economy or a country as a result of the local currency losing its value or declining.

MONETARY POLICY RATE (MPR) Monetary policy rate formally called “Minimum Rediscount Rate”, is an “authorized interest rate of the Central Bank which anchors all other interest rates in the money market and economy”. (CBN, 2006). It is one of the monetary policy instruments used to influence intermediate target and objectives. The volume of money in circulation decreases if MPR is increased.

TREASURY BILLS RATE (TBR) Treasury bills rate is the rate or percentage at which treasury bills are auctioned in the money market by the treasury or Central Bank. It is used by the Central Bank to balance liquidity in the banking system through Open Market Operations.

 EXCHANGE RATE (EXR) Exchange rate can be said to be the price or amount at which a local currency is being exchanged or traded with a foreign currency. Or exchange rate is the amount at which a currency (domestic currency) is being exchanged with another currency (foreign currency).


(M2) Money supply (M2) or broad money supply is the currency in circulation with non-bank + demand deposit or money in current account. (i.e. money not in banks e.g. in wallet, pockets + money in 13 account in current and deposit account) + Savings and time deposit as well as currency denominated deposits (treasury bills, commercial paper etc.)





In this chapter, we described the research procedure for this study. A research methodology is a research process adopted or employed to systematically and scientifically present the results of a study to the research audience viz. a vis, the study beneficiaries.


Research designs are perceived to be an overall strategy adopted by the researcher whereby different components of the study are integrated in a logical manner to effectively address a research problem. In this study, the researcher employed the survey research design. This is due to the nature of the study whereby the opinion and views of people are sampled. According to Singleton & Straits, (2009), Survey research can use quantitative research strategies (e.g., using questionnaires with numerically rated items), qualitative research strategies (e.g., using open-ended questions), or both strategies (i.e., mixed methods). As it is often used to describe and explore human behaviour, surveys are therefore frequently used in social and psychological research.


According to Udoyen (2019), a study population is a group of elements or individuals as the case may be, who share similar characteristics. These similar features can include location, gender, age, sex or specific interest. The emphasis on study population is that it constitutes of individuals or elements that are homogeneous in description.

This study was carried to examine the efficiency of monetary policy in contribution inflation in Nigeria. CBN in Uyo form the population of the study.


A study sample is simply a systematic selected part of a population that infers its result on the population. In essence, it is that part of a whole that represents the whole and its members share characteristics in like similitude (Udoyen, 2019). In this study, the researcher adopted the convenient sampling method to determine the sample size.


According to Nwana (2005), sampling techniques are procedures adopted to systematically select the chosen sample in a specified away under controls. This research work adopted the convenience sampling technique in selecting the respondents from the total population.




This chapter presents the analysis of data derived through the questionnaire and key informant interview administered on the respondents in the study area. The analysis and interpretation were derived from the findings of the study. The data analysis depicts the simple frequency and percentage of the respondents as well as interpretation of the information gathered. A total of eighty (80) questionnaires were administered to respondents of which only seventy-seven (77) were returned and validated. This was due to irregular, incomplete and inappropriate responses to some questionnaire. For this study a total of 77 was validated for the analysis.




It is important to ascertain that the objective of this study was to ascertain the efficiency of monetary policy in contribution inflation in Nigeria. In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing an the efficiency of monetary policy in contribution inflation in Nigeria


This study was on the efficiency of monetary policy in contribution inflation in Nigeria. Three objectives were raised which included:  to investigate the major causes of inflation in Nigeria during 1980s, to investigate if the Nigeria monetary policy is efficient or not in the achievement of certain objectives of the economy and inflation control in particular, to see if the non-realization of the economic objective is due to chosen instrument or inappropriate application of the instrument and to recommend policy solution based on the above finding. A total of 77 responses were received and validated from the enrolled participants where all respondents were drawn from selected primary schools in Uyo. Hypothesis was tested using Chi-Square statistical tool (SPSS).


. The problems of inflation are undoubtedly surmountable if only the constituted authorities would demonstrate their dexterity in implementations of the necessary policies to curb the menace. Since one of the components that are relatively under the control of the monetary authority in Nigeria is the nominal effective exchange rate, efforts must be made to ensure exchange rate stability in order to stem inflationary tendencies. Also, government must put in place measure that will reduce the impact of fluctuated crude oil prices on domestic inflation. This can be achieved by reducing the dependence of the economy on crude oil exports by diversifying the productive base of the economy to non-oil exports. Government should also stimulate the productive capacity of the economy, especially the agricultural sector to increase aggregate supply of food products so that prices will come down and consequently reduce the rate of inflation 


This study has identified that the major driver of inflation is expected inflation. It is thereby recommended that government should handle and manage information on crucial macroeconomic variables relating to control of inflationary pressures.

Secondly, the Central Bank should identify practical means of contracting money supply in the system and make better use of exchange rate to lessen inflation. The study discovered that annual Treasury bill rate through open market operation as proxy has not been effective in influencing inflation. Hence, schemes to make it more effective should be implemented perhaps through competitive rates.


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