ECONOMETRIC ANALYSIS OF INFLATION AND MONETARY POLICY INDICES IN NIGERIA

Abstract

This work studied the intricate web of economic relationships in Nigeria, exploring the interactions between exchange rates, inflation, money supply, and economic growth. The research unveiled valuable insights into the dynamics of Nigeria's economy and its implications for policymakers. The work attempts to explore the impacts of exchange rate fluctuation, increasing inflation rates increased money supply on Economic growth in Nigeria. The econometric technique of Error correction model (ECM) was relied upon as a major analytical tool to determine the relationship among the variables. Our findings unveiled a noteworthy connection between exchange rates and inflation, underlining the influence of exchange rate fluctuations on inflationary pressures. Additionally, money supply and economic growth were identified as significant factors affecting inflation rates, aligning with theoretical expectations. Notably, these variables collectively explained a substantial portion of the variation in real Gross Domestic Product (RGDP), signifying their collective influence on economic outcomes. The error correction model (ECM) underscored the statistical significance of the long-term relationships among these variables. In light of these findings, we recommend that policymakers in Nigeria pay close attention to exchange rate policies, monitor and manage money supply, and prioritize economic growth as integral elements in their efforts to control inflation and maintain economic stability. Continuous monitoring and analysis of these variables will be crucial for informed decision-making and effective economic management in Nigeria.