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Monetary Policy and Inflation in Nigeria: Unraveling the Threshold Puzzle

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  • IRIABIJE Alex Oisaozoje

    (Department of Economics, University of Uyo, Ikpa Road, PMB 1017, Akwa Ibom State, Nigeria)

  • Christopher Nyong Ekong

    (Department of Economics, University of Uyo, Ikpa Road, PMB 1017, Akwa Ibom State, Nigeria)

  • Paul Atanda Orebiyi

    (Department of Economics, University of Uyo, Ikpa Road, PMB 1017, Akwa Ibom State, Nigeria)

Abstract

In this study, we investigated the threshold effects of monetary policy on inflation using two policy tools (monetary policy rate and money supply) for Nigeria from 1980 to 2021. Country specific data on inflation and monetary policy variables controlled with literature specified variables were analyzed using threshold autoregression (TAR). We found a threshold level of 13.69 units and 11.19 units respectively for monetary policy rate and money supply growth capable of making monetary policy management behave differently in inflation control. As an instance, we found that within the periods when policies are below and above the threshold levels (Monetary policy rate, exchange rate and Money supply), only monetary policy rate and money supply growth will be statistically efficient in curtailing inflation in Nigeria. Exchange rate management is only effective in periods of low policy rate regimes. We recommend, among other things, that monetary policy management strive to keep inflation in the economy in line with policy threshold strength for effective price stability.

Suggested Citation

  • IRIABIJE Alex Oisaozoje & Christopher Nyong Ekong & Paul Atanda Orebiyi, 2024. "Monetary Policy and Inflation in Nigeria: Unraveling the Threshold Puzzle," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 8(4), pages 77-91, April.
    • Handle: RePEc:bcp:journl:v:8:y:2024:i:4:p:77-91
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    References listed on IDEAS

    as
    1. Carmen Diaz-Roldan & María A Prats & Maria del Carmen Ramos-Herrera, 2021. "Redefining monetary policy rules: A threshold approach," PLOS ONE, Public Library of Science, vol. 16(5), pages 1-13, May.
    2. Godwin Edet Bassey & Uduak Michael Ekong, 2019. "Energy Consumption and Inflation Dynamics in Nigeria: An ARDL Cointegration Approach," Energy Economics Letters, Asian Economic and Social Society, vol. 6(2), pages 66-83.
    3. Godwin Edet Bassey & Uduak Michael Ekong, 2019. "Energy Consumption and Inflation Dynamics in Nigeria: An ARDL Cointegration Approach," Energy Economics Letters, Asian Economic and Social Society, vol. 6(2), pages 66-83, December.
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