THE EFFECTIVENESS OF MONETARY POLICY IN CONTROLLING INFLATION IN NIGERIA

By

CHIGBOGU GLORIA OBIOMA

Presented To

Department of Accountancy

ABSTRACT

This research work was embarked to aid you to study the effectiveness of monetary policy in controlling inflation in Nigeria. The need to the study was informed by the tend inflationary growth over the years and also the impact of the inflation in achievement of the four basic economic growth, price, stability, high level of employment and low inflationary rate for favourable balance of payment. Many research works have been carried out on this issue previously but despite all the good policies of government and its agent, these goals have remained elusive over the years. There was therefore a need for a study on these sensitive issues. For the purpose of this study, data was gathered through the secondary source, which includes money supply, gross domestic product and the inflationary rate for a period.

TABLE OF CONTENT

Title page

Approval page

Dedication

Acknowledgement

Abstract

Table of content

CHAPTER ONE

Introduction

1.1 Statement of problem

1.2 Research question

1.3 Definition of the term

1.4 Objectives of the research

1.5 Scope of the study

1.6 Limitations of study

CHAPTER TWO

An overview of Nigerian monetary policy

2.1 Administration of monetary policy

2.2 Objectives of monetary policy

2.3 Instruments of monetary policy

2.4 Monetary theory of inflation

2.5 Inflation in Nigeria

2.6 Types of inflation

2.7 Causes of inflation

2.8 Monetary policy as control measure in Nigeria

CHAPTER THREE

Research design and methodology

3.1 Sources of secondary data

3.2 Method of investigation

3.3 Sampling procedure

CHAPTER FOUR

4.1 Conclusion/recommendation

4.2 Recommendation

Bibliography

CHAPTER ONE

INTRODUCTION

In Nigeria, the central bank which is at the apex of the banking pyramids applies a variety of policy measure and technique with which to control and regulate money and credit in order to attain the desired for necessary to use the package of discussing the efficiency or otherwise of general economic management strategies.

Government policy statement clearly revealed that inflation becomes a problem in Nigeria about early 1970s. The contention can be sustained further by the fact that the economic brogan to experience double digit rate of inflation from the early part of the decade globally, the power of the inflation is not peculiar to Nigeria. But it is general to attain to a higher level of economic development as the period generally lead to inflation spiral in the country.

But whether inflation in Nigeria is due to monetary mismanagement on the part often authorities concerned or caused by inherent structure deficiencies still remain uncertain. Many factors have been identified to be responsible for inflationary pressure in the economy. In a symposium in Nigeria held sometimes ago, most of the participants stressed on money supply net come of government expenditure. Limitation in real output and the influence comported, as the major causes of inflation in Nigeria. In the process of formulating monetary policy it is of paramount.

1.1 STATEMENT OF THE PROBLEM

Many attempts have been made by the Nigerian authorities to attain higher rates generally being accompanied by certain degrees of prices increase in recent into years. The phenomenon developed into several and prolonged inflation and stagflation indeed, it is increasingly being recognized that a process of rapid economic growth is likely to provoke inflationary pressure.

However, whether the problem of inflation in this country is due to mismanagement of monetary policy tools or structural deficiencies still remain a contriver sail mother.

During the last decade, the problem of inflation on reflection to economic growth and development has been extensively discussed. The problem is not peculiar to Nigeria. But was ashamed global phenomenon on. It is generally agreed world wide that inflation is socially unjust. Inflation also effects general economic behaviour and the pattern of resources allocation. By disporting price relations and under mining general confidence, prolonged inflation tends to direct investment away from production sector and this slacker growth.

Furthermore, inflation discourages private savings and encourage speculation among the various economic units.

Another consequence is that it result in balance of payment difficulties and reduce the external having its national economic management strategies largely informed by new classical and Keynesian persuasion, have song over the decades for the analysis recommendation upon the very degree with respect to taxing public. The monetary control policy has non-, thus primary variable.

I hereby try to analyze the causes and effect of Nigeria inflation in terms of some qualifiedly variable as: money supply, real output etc.

1.2 RESEARCH QUESTION

The following are the question point to my research.

1. What are the causes of inflation?

2. What are the consequences of inflation?

3. Does inflation have any effect in the standard of living?

4. Does inflation have any effect on the income?

5. Does level of supply influence date?

6. Does inflation hamper economic growth?

7. Can monetary policy measure control inflation?

8. Can economic growth be consistent during inflationary period?

9. How can inflation be controlled if not eliminated?

1.3 DEFINITION OF TERMS

The operational terms are defined to help the reader to have a better knowledge of research.

MONETARY POLICY

This is any conscious action undertaken by the monetary authorities to change the volume, availability, quantity, cost and direction of money and credit in a given economy.

It can also be defined as the credit measures adopted by central banks to control the supply of money of which is the objective of achieving the general economic policy.

It consists of action by the government, which are aimed at the achievement of certain set of economic objectives.

POLICY

This is statement include objective to attain it, many include proportion in the use of means to attain those objectives.

FISCAL POLICY

This is just a government policy that concerns revenue and taxation.

INFLATION

This is rise in the general price level of all goods and services.

DEMAND-PULL INFLATION

Condition of general rising in prices caused by increase in aggregate demand expenditure, savings campaign, credit, controls image adjustment and all the conceivable anti-inflationary measure affecting the price which all combined should determine in general level.

All the measure so far adopted here provided inadequate in solving the problem of inflation in the country. The suffering of masses are unending as the daily price shags occurs.

Indeed, a more far reaching solution to the problem is mulled. Hence, this study seems to find what control has monetary policy on inflation.

1.3 OBJECTIVES OF THE RESEARCH

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

They are as follows:

1.This work is getting out to instigate the major causes of inflation in Nigeria during 1990s.

2. To investigate if not in the achievement of this efficient objective of the economy and inflation control in particular.

3. To see if the non-validation of the economic objectives is due to chosen instrument or in appropriate application of the instrument.

4. To recommend policy sudation based on the above findings.

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

1.5 SCOPE OF STUDY

Since inflation arises when aggregate demand exceed aggregate supply, we shall focus our attention of examination of

BALANCE OF PAYMENT

This is a double entry statement of account, which reveals the direct ness of various transactions in goods. Devices and capital flows between resident of one country and those of the rest of the world.

EFFICIENCY

This is the ability of Nigeria monetary policy to achieve the desired macro economic objectives in general and to control inflation in particular.

1.6 LIMITATIONS OF STUDY

The limitations of the study centers around the time limit, which this study has to be completed, is little more than three (3) months, these limitations not withdrawing is the researcher has.

COST-PUSH INFLATION: Conditions of general rise in price causes of production costs.

HYPER INFLATION: Situation where prices are rising with little or no increase in output.

ECONOMIC GROWTHS: An increase in the productivity of a nation or area.

INTEREST RATE: The cost of credit.

MONEY SUPPLY: Used as (MI) is used for the purpose of this research and as defined as the currency with non bank public © plus private sector demand deposits the other definition of money supply (M2) as that which incorporate both precautionary demand and store of value in M1. This technically defined as follows:

M2 = 1 = + during deposit (SO) +

Time deposit (TO)

GENERAL PRICE LEVEL: The overall prices of goods and services usually measured with consumer price needs. (CPI) the CPI measures the rise or fall in the general level.

CENTRAL BANK OF NIGERIA (CBN)

This is the highest monetary policy in Nigeria charged with responsibilities of the issuance of legal tender currency in Nigeria maintenance of external reserve in order to safeguard the international relieve of the currency. The promotion of the monetary stability and sound financial structure, banker and financial advice to the federal government and banker to other bankers in Nigeria made every effort to ensure the realization of the research objectives.

REFERENCES

Adherence F. (1987): The Element of Banking In Nigeria. 3^rd Edition,

F & A Publishers Lagos.

Central Bank Of Nigeria (1995): Statistical Bulleting Lagos Vol

4 No. 2.