Error Correction Modelling of Monetary Policy Instruments Behavior and Inflation Dynamics in Nigeria

Abstract

Monetary policy measures are fundamental macroeconomic plots towards inflation control in an ecosystem. Thus, the paper investigated the impact of monetary policy instruments and inflation dynamics in Nigeria from 1991 -2024. Monetary policy instruments captured as independent variables are, money supply, exchange rate, monetary policy rate, and treasury bills rate, the dependent variable is the consumer price index as a proxy for inflation dynamics. The ECM approach was specified and estimated after pre-estimation tests were conducted. The ECM result revealed varying effects of monetary policy tools on inflation dynamics, as all shows negative impacts on inflation. Some post diagnostics checks were performed to determine the reliability and dependability of the result. On the strength of the findings, the study recommends among others for conscious regulation of money supply and other rates in the ecosystem.