The study seeks to establish a theoretical foundation that it would be based on. This investigation would be on the research carried out by Husnan in Indonesia and the one carried out by Sanusi (2002) in Nigeria, respectively. They observed that to achieve price stability, inflation, exchange rate etc. that a transmission mechanism of the monetary policy is useful in influencing the prize and quantity of the above mentioned macroeconomic indication and ultimately real economic activities.
Soludo (2010) noted that the central issue of controversy remains the role and usefulness of monetary policy as a counter ­- cyclical policy tool in prize stabilization.
Monetary policy got its root from the work of Irving fisher (see Diamond , 2003. p. 49) who lay the foundation of the quantity theory of money through his equation of exchange. In his proposition money has no effect on economic aggregates but prize. However, the role of money in an economy got further elucidation from (Keynes 1930 p.90) and other Cambrige economist who proposed that money has indirect effect on other economic variable by influencing the interest rate which affects investment and cash holding of economic agents. The position of Keynes is that unemployment arises from inadequate aggregate demand which can be increased by increase by money supply which generates increase spending, increase employment and economic growth. However, he recommends a at some occasion, monetary policy could fail to achieve its objective the role of monetary policy which is of course influencing the volume, cost and direction of money supply was effectively conversed by (Friedman, 1968. p. 1-17), whose position is always and everywhere a monetary phenomenon while recognizing in the short run that increase in money supply can reduce unemployment but can also create inflation and so the monetary authorities should increase money supply with caution.
Monetary policy instrument on the other hand, are the variable under the control of three monetary authorities and have effect on the proximate targets (Anyanwu, 1997:271). These instrument can be quantitative, general, market based, quantitative selective, direct (Jhingan, Ml,2001:316). The qualitative, (selective or direct tools)among others include:
·        Aggregate credit ceilings
·        Deposit ceiling
·        Exchange controls
Restriction on the placement deposit
Special deposit
Stabilization securities
While the indirect or market-based tools includes
·        Open market operation (OMO)
·        Cash reserve requirement
·        liquidity ratio
·        minimum rediscount rate
·        parity changes
·        selective credit control
The CBN uses monetary policy in order to maintain prize stability. Hence, price stability occurs when goods services in general are not getting rapidly more expensive (that is inflation). Or less expensive (that is deflation). At present, price stability is defined as keeping inflation on average over the medium term. Inflation on the other hand depicts on economic situation where there is a general rise in the price of goods and services continuously.
The economic environment that guided monetary policy 1986 was characterized by the dominance of the oil sector, the expanding role of the public sector in the economy and over – dependence on the external sector. In order to maintain price stability and a healthy balance of payments, position, monetary management depended on the use of direct monetary instrument such as credit ceilings, selective credit controls, administered interest and exchange rates, as well as the prescription of cash reserve requirements and special deposits.
The use of market–based instruments was not feasible at that point because of the under developed nature of the financial market and deliberate restraint on interest rates. The most popular instrument of monetary policy was the issuance of credit rationing guidelines, which primarily set the rates of change for the component and aggregate commercial bank loans and advances to the private sector. And there by stem inflationary pressures. The fixing of interest rates at relatively low level was done mainly to promote investment and growth. Occasionally, special deposits were imposed to reduce the amount of free reserves and credit creating capacity for the banks. Minimum cash ration were stipulated for the banks in the mid-1970s on the basis of their total deposit liabilities, but since such cash ratios were usually lower than those voluntarily maintained by the banks, they proved less effective as a restraint on their credit operation.
            Nzotta and Okereke (2001) opined that the pursuit of price stability invariably implies the indirect pursuit of other objectives such as economic growth which can only take place under condition stability and allocative efficiency of the financial markets, since inflation is generally considered as purely a monetary phenomenon with significant cost to the economy. The primary goal of monetary policy to him is to ensure that money supply is at a level that is consistent with the growth rate will be ensured. Without mincing words, the literatures stipulate that the pursuant of prize stability therefore, encompasses all main areas in which the central bank can contribute towards stabilizing the macroeconomic environment of the country.
            In order words, the movement from a fixed regime was among other things to stimulate growth and maintain a healthy external balance which is what is generally referred to as macroeconomic stability.
In particular, the theoretical foundation will be based on the monetary policy transmission mechanism of Sanus; (2002) and the research of Husnan, an example of developed and developing economy.

The empirical studies of monetary policy in Nigeria recorded varying results. Abata, Kehinde and monetary policies influence economic growth and development in Nigeria. They argued that curbing the fiscal indiscipline of government will take much more than enshrining fiscal policy rules in our statute books. This is because the statute books are replete with dormant rules and regulation. It notes that there exists a mild long-run equilibrium relationship between economic growth and fiscal powerful portability stakeholders strong enough to challenge government fiscal recklessness will need to emerge.
Amassoma, Nwosa and Olaiya(2011) appraised monetary policy development in Nigeria and also examine the effect of monetary policy on macroeconomic variable in Nigeria for the period 1986 to 2009. Adopting a simplified ordinary least squared technique after conducting the unit root and co-integration tests, the findings showed that monetary policy have witnessed the implementation of various policy initiatives  and has therefore experienced sustained improvement over the years. The result also shows that price stability within the Nigeria economy. The study concludes that for monetary policy to achieve its other macroeconomic objective such as economic growth, there is the need to reduce the excessive expenditure of the government and align fiscal policy along with monetary policy measure.
Okwu, Obiakor, Falaiye and owolabi (2011) examined the effects of monetary policy innovations on stabilization of commodity prices in Nigeria. Consumer price index (CPI), broad money aggregates (BMA) and monetary policy Rate (MPR) were applied to a multiple regression model specified on perceived functional link between the indicators of Central Bank of Nigeria’s monetary policy innovations and commodity prices indicator. The result showed that positive relationship existed between the respective indicators of monetary policy innovations and indicators of commodity prices responded more to monetary policy rates than broad money on consumer price index and the commodity prices responded more to monetary policy rates than to broad money aggregates; although both broad money and monetary policy rate had more immediate effect on commodity prices, only broad money exerted significant effect of 0.05 level of significance.
However, overall effect of both commodity prices was statistically significant.
            Hameed, Khaid and Sabit (2012) presented a review of how the decision of monetary authorities influence the macro variable like G D P, money supply, interest rates, exchange rates and inflation. The method of least square explains The relationship between the variable under study. Tight monetary police with balance adjustment in independent variables shows a positive relationship with dependent variable.
            Nnanna (2001, p. 11) 0bserve that thought, the monetary management in Nigeria  has been relatively more successful during  the period of financial sector reform  which I characterized by the use of indirect  matter than direct monetary policy tools yet, the effectiveness of monetary policy has been undermined by the effects of fiscal dominance, political interference and the legal environment in which the central bank operates. (Busari et-al 2002) state that monetary policy stabilizes the economy better under a flexible exchange rate system than a fixed exchange rate system and it stimulates growth better under a flexible rate regime but is accompanied by serve depreciation, which could destabilize the economy, meaning that monetary policy would better stabilize the economy if it is used to target inflation directly than been used to directly stimulate growth.  
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