Money Market Instruments and Nigeria Inflation Rate: A Time Series Study
Abstract
This study empirically examined the effectiveness of money market instruments on Nigerian inflation rate. The objective is to investigate the existing relationship between money market instruments and Nigerian inflation rate, data was sourced from Central Bank of Nigeria statistical bulletin. Multivariate model were formulated having Inflation Rate (INFR) as the function of Percentage of Treasury Bills to Gross Domestic Product (TB/GDP), Percentage of Stabilization Securities to Gross Domestic Product (STS/GDP), Percentage of Treasury Certificate to Gross Domestic Product (TC/GDP), Percentage of Eligible Development Stock to Gross Domestic Product (EDS/GDP), Percentage of Central Bank of Nigeria Short Term Fund to Gross Domestic Product (CBNSF/GDP) and Percentage of Call Money Scheme to Gross Domestic Product (CMS/GDP). The Ordinary Least Square (OLS) properties of co integration, Augmented Dickey Fuller Unit Root, Granger Causality Test and Vector Error Correction Model (VECM) were employed to determine the relationship between the money market instruments and Nigerian inflation rate. Findings revealed that money market instruments are statistically significant in explaining variation in Nigerian inflation rate. We therefore recommend that the money market should well be structured, properly managed and its operational efficiency enhanced to achieve the monetary policy objective of price stability.
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