Impact of Monetary Policy and Inflation on Economic Growth in Nigeria

Abstract

Monetary policy is an economic technique used to bring sustainable economic growth and development in a given economy which has been a yearning of nations. This has been mainly on how the money affects economic aggregates dates back the time of Adam Smith and later championed by the monetary economists. One of the major objectives of the monetary policy in Nigeria is economic growth using money supply and inflation control (price stability) as a measure; but despite the various monetary regimes that have been adopted by the Central Bank of Nigeria over the years, inflation still remains a major threat to Nigeria’s economic growth. Based on this premise that we want to analyze the impact of monetary policy and inflation on the Nigeria’s economic growth. The study employed the econometric technique of Autoregressive Distributed Lag Mode to estimate the parameters of the model. Annual data from 1990 to 2023 on money supply, inflation and GDP were obtained from Central Bank of Nigeria and National Bureau of Statistics. The empirical result reveals that, there is long run relationship between the variables. It shows that, monetary policy significantly affects the economy while current inflation has an insignificant positive effect to the economy. The interest rate and money supply significantly positively impact GDP growth when lagged. The exchange rate also shows a significant positive effect on growth to the economy. Based on the findings, the study recommended that government should intensify efforts in setting a committee to come up with a strategy for controlling the amount of monetary policy rate efficiently for attaining price stability in the economy. Government should also see to the size and supply of money in the economy so as to control inflation in the country