Monetary policy and inflation in Nigeria: a dynamic ordinary least squares approach
Anne Urenna Azuike
This study investigates the long-term impact of monetary policy on inflation in Nigeria from 2000 to 2025, focusing on the Monetary Policy Rate (MPR), Cash Reserve Ratio (CRR), and broad money supply (M2). The study was driven by the persistence of high inflation in the face of an exceptional monetary tightening cycle that increased the MPR to 27.25% and the CRR to 50% by 2024. Using an ex-post facto quantitative design and annual data from the CBN Statistical Bulletin, the Augmented Dickey-Fuller test confirmed that all variables have order one integration, I(1), while the Johansen test identified two cointegrating equations. The Dynamic Ordinary Least Squares (DOLS) estimator was used for long-term estimation. The MPR (β = 0.417; p = 0.873) and CRR (β = 0.436; p = 0.582) were not statistically significant in the long term. However, the wide money supply had a negative and substantial effect (β = -6.048; p = 0.015), indicating financial deepening rather than excess demand. Post-estimation diagnostics validated the model's robustness, normalcy, and structural integrity. The paper indicates that traditional monetary instruments are ineffective against Nigeria's supply-side inflation and suggests a whole-of-government approach that includes exchange rate stabilisation, supply-chain investment, and credible inflation targeting.
