The implementation of the Structural Adjustment Programme (SAP) in 1986 and de-regulation of financial sector in Nigeria offered a lot of policy change in monetary policy development in Nigeria. The deregulation brought an establishment of exchange markets in 1986. In 1987, there was a removal of interest rate, unification of foreign exchange markets and liberalization of bank licensing. The third high inflation episode started in the last quarter of 1987 and accelerated through 1988 to 1989. This episode is related to the fiscal expansion that accompanied the 1988 budget. 

In 1989, banks were permitted to pay interest on demand deposits, ban on credit extension based on foreign exchange deposits. In 1990, a uniform accounting standards was introduced for banks while a stabilization security to mop up excess liquidity was also introduced. In 1991, inflation fell reaching one of its lowest points in 1991 that is 13% (CBN 2009). There was an embargo on bank licensing while the administration of interest rate was introduced. Central Bank was also empowered to regulate and supervise all financial institutions in the economy. In 1992, privatization of government owned banks commenced, credit control was removed in 1993, indirect monetary instrument were introduced while in 1994, re-imposition of interest and exchange rate controls were made. In 1997, the minimum paid up capital of merchant and commercial bank was further raised to a uniform level of N500 million. In 2001, Universal banking system was introduced. In 2005, CBN compelled all commercial banks to raise their capital base from N2 billion to N25billion. In 2006, the CBN introduced a new monetary policy implementation frame work (monetary policy rate (MPR) to replace the minimum Re – discount Rate (MRR). 

The various policies initiated were to bring about stability in the macroeconomic variable. Overall, the CBN’s amended Act granted the Bank more discretion and autonomy in the conduct of monetary policy. Consequently, the focus of monetary policy during his period shifted significantly from growth and developmental objectives to price stability. The operational frame work for indirect monetary policy management involved the use of market (indirect) instruments to regulate the growth of major monetary aggregates. Under this frame work, only the operating variables, the monetary base or its components are targeted, while the market is left to determine the interest rates and allocate credit. Essentially, the regime involves an econometric exercise, which estimates the optimal monetary stock, which is deemed consistent with the assumed targets for GDP growth, the inflation rate and external reserves. Thereafter, market instruments are used to limit banks reserve balance as well as their credit creating capacity.

            There are different transmission channels through which monetary policy affects economic activities and these channels of transmissions have been broadly examined under the monetarist and Keynesian schools of thought. The monetarist postulates that change in the money supply leads directly to a change in the real magnitude of money. Describing this transmission mechanism, (Friedman and Schwartz. 1963) say an expansive open market operation by the central bank, increase stock of money through the multiplier effect. In their portfolios, the bank and non-bank organizations purchase securities with characteristic of the type sold by the central bank, thus stimulating activities in the real sector. This view is supported by (tobin, 1978) who examines transmission effect in terms of assets portfolio choice in that monetary policy triggers asset switching between equity, bonds, commercial paper and bank deposits. He says that tight monetary policy affects liquidity and bank ability to lend which therefore restricts loan to prime borrowers and business firms to the exclusion of mortgages and consumption spending thereby contracting effective demand and investment. Conversely, the Keynesian posit that change in money stock facilitates activities in the financial market affecting interest rate, investment, output and employment. (Modigliani, 1963) supports this view but introduced the concept of capital rationing and said wiliness of transmission. In their analysis of use of bank and non bank funds in response to tight monetary policy (Oliner and Rudebush, 1995) observe that there is no significant change in the use of either but rather larger firms crowd out small firms in such time and in like manner (gentler and Gilchrest, 1991) supports the view that small businesses experience decline in wan facilities Turing tight monetary policy and they are affected more adversely by change in bank related aggregates like broad money supply. Further investigation by (Borio, 1995) who investigated the structure of credit to non government borrowers in fourteen industrialized countries observe that it has be influenced by factors such as terms of wan as interest rates, collateral requirement and willingness to lend. 

            The performance of the Nigeria monetary frame work under the post –regime can be assessed according to which the actual growth in monetary aggregate, GDP growth rate and inflation, approximate the ex ante policy target Report  from IMF (2004,2005) and the central bank of Nigeria  (CBN) shows that both authorities have been particularly exercise with the appropriate response to mop- up excess liquidity through the domestic debt management and that has brought down the excess liquidity induced by the inception of rapid monetization of inflows, minimum wages adjustment and the financing of governments fiscal deficit through the banking system.
It will be recalled that one of the major objectives of monetary policy in Nigeria is prize stability. But despite the various monetary regimes that have been adopted by the central bank of Nigeria over the years, inflation still remains a major threat to Nigeria economic growth. Nigeria has experienced high volatility in inflation rates. Since the early 197o, there have been four major episodes of high inflation, in excess of 30 percent. The growth of money supply is correlated with the high inflation episodes because money growth was often in excess of real economic growth. However, preceding the growth in money supply, some factors reflecting the structural characteristics of the economy are observable. Some of there are supply shocks, arising from factors such as famine, currency devolution and change in terms of trade. By definition, price stability in Nigeria refers to the achievement of a single digit inflation rate in an annual basis. Indeed, this objective has not been achieved on a sustained basis. In 1995, the rate of inflation was 75.8 percent while the target of single digit inflation was achieved in only three out of six between 1995 and 2000.
Inflation rate in Nigeria was last reported as 9.4 percent in July 2011 as against 10.20 percent in 2010. Inflation rate refers to the general rise in price measured against a standard level of purchasing power. The most well known measure of inflation is the consumer price index (CPI) which measures consumer price and the GDP deflator which measurer inflation in the while of the domestic economy. (IMF WEO).
Inflation affects different people differently. When there is inflation, most prices are rising, but the rates of increase of individual price differ much. The effect of inflation is explained on redistribution of income and wealth, production and on the society as a whole. Inflation redistributes income from wage earners and fixed income groups to profit recipients and from creditors to debtors. On the other hand, when prices start rising production is encouraged. They invest more in the anticipation of higher profits in the future. This tends to increase employment, production and income; which is only possible up to the full employment level. All this reduces the efficiency of the 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.  

            This chapter focuses on the research method that will be adopted. The methodology to be adopted is the ordinary least square (OLS) method of regression. Ordinary Least Square (OLS) is adopted because of its simplicity and estimates obtained from this procedure have optimal properties including Linearity, Unbaisedness, Minimum variance, zero mean value of the random term, etc (Gujaati 2004).

            The data for this research project is obtained from the following sources:
-              Central Bank of Nigeria (CBN) statistical Bulletin for various years.
-              Central Bank of Nigeria (CBN) Annual account for various years.
-              Central Bank of Nigeria (CBN) Economic and financial Review for various years.     

      In this study, the hypothesis has been stated with the view of evaluating the impact of monetary policy on price stability. In capturing the study, the following variable; Inflation rate, money supply, interest rate and exchange rate are to be used as proxy. Thus, the model is represented symbolically in its functional form as:
                  INF = F (MS, INT, EXC) -------------         3.1
                  INF = Inflation Rate
                  MS = Money supply
                  INT = Interest Rate
                  EXC = Exchange Rate
Thus in view of the relationship between inflation (dependent variable) and this macro – economic variable (i.e. independent variable), we then structurally express the equation 3.1 in its mathematical form and also introduce the stochastic element, Ut to take care of other variable that are not included in our model. In a linear function, it is represent as follows,
INF = bo + b1 MS + b2 INT + b3 EXC + Ut ----------- 3.2

            bo = constant term/parameter intercept
            b1, b2 and b3 = coefficients of the parameters estimates.
            Ut = Error Term
            As effort will be made to rescale the data, the log function is thus expressed as follow:
LOG (INF) = bo + b1 LOG (MS) + b2 LOG (INT) + b3 LOG (EXC) + Ut
            At this level of research, using a time series data, the research estimates the model with ordinary least square method. This method is preferred to others as its best linear unbiased estimator, minimum variance, zero mean value of the random term, etc (Koutsoyiannis, 2001).
            The tests that will be considered in this study include:
(1)              Coefficient of multiple determinations (R2)
(2)              Standard Error test (S.E)
(3)              T – test
(4)              F – test
(5)              Durbin Watson Statistics
Ø  COEFFICIENT OF MULTIPLE DETERMINATIONS (R2): It is used to measure the proportion of variations in the dependent variables. The higher the (R2), the greater the proportion in the independent variables as brought about by the independent variable and vice – versa
Ø  STANDARD ERROR TEST (S.E): It is used to test for the reliability of the coefficient estimates.
If S.E < 1/2bi, reject the null hypothesis and conclude that the coefficient estimate of the parameter is statistically significant. Otherwise accept the null hypothesis.
Ø  T – TEST: It is used to test for statistical significance of individual estimate parameter. In this research, T – test is chosen because the population variance is unknown and the sample size is less than 30.
If T – cal > T – tab, reject the null hypothesis and conclude that the regression coefficient is statistically significant. Otherwise accept the null hypothesis.
Ø  F – TEST: It is used to test for the joint influence of the explanatory variable on the dependent variable
If F – cal > F – tab, reject the null hypothesis and conclude that the regression plane is statistically significant. Otherwise, accept the null hypothesis.
Ø  DURBIN WATSON (DW): It is used to test for the presence of auto – correlation (serial correlation).
If the computed Durbin Watson statistics is less than the tabulated value of the lower limit there is evidence of positive first order serial correlation. However, if it lies between the upper limit, there is inconclusive evidence regarding the presence or absence of positive first order serial correlation.
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