EFFECTIVENESS OF MONETARY POLICY IN CONTROLLING INFLATION

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  • Project ID: BFN1989
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INTRODUCTION
Inflation has become a significant problem for Africa and Nigeria in particular during the past twenty years. Since the first oil shock in the mid-1970s, African inflation rates have averaged more than 15 percent a year. For Sub-Saharan Africa, the average inflation rate has been closer to 20 percent a year. A few Sub-Saharan countries have even experienced inflation rates of 50 or even 100 percent a year (Batini, 2004).

The emergence of substantial inflation in Africa has led to widespread debate about its causes. Many economists that favour traditional adjustment strategies contend that monetary growth, arising particularly from the domestic bank financing of large budget deficits, is the major source of inflationary pressures. By contrast, some critics of the traditional approach, such as the United Nations’ Economic Commission on Africa (UNECA) in its “African Alternative Framework for Structural Adjustment Programmes” (UNECA, 1989), have identified exchange rate depreciations as a major factor.

Controversy between these two viewpoints has led to differing prescriptions about the appropriate policy response. Those focusing on monetary factors have emphasized reducing government budget deficits and restraining credit to public enterprises, while advocating exchange rate depreciation to offset any overvaluation resulting from past inflation and deterioration in the terms of trade. Those emphasizing the role of exchange rate depreciation, by comparison, have argued against further exchange rate adjustments, preferring instead a combination of incomes policies, price controls, and demand reduction measures.

Despite its importance, there has been surprisingly little research on the control of inflation in African countries. The few empirical studies on this issue have used traditional econometric techniques best suited to identifying whether individual variables are related to inflation. Thus, the relative importance of monetary policy in the control of inflation remains to be determined. It is on this background that this study would investigate the effectiveness of the monetary policy in combating inflation in Nigeria.

LITERATURE REVIEW
For the purpose of achieving the objective of this study, it will be necessary to review some earlier works in this field of study such and analytical review will provide an insight into the crimes aspects of the problems and provide us into adequate theoretical back ground. It is also through such a review of literature that we will able to determine the limitation of previous studies and the ways by which the prevent study will help in providing answers to the problems.
According to Anyanwu (1998), how sees military policy, as measures designed to regulate and control the volume cost, availability and direction of money and credit in an economy to achieve some specified macro economic policy objectives. That is, it is a deliberate effort by the monetary authorities of (central bank and ministry of finance) to control the money supply and credit condition for the purpose of achieving certain broad economic objectives.
According to Akata (1993) monetary policy in Nigerian context to encompasses actions of central bank of Nigeria that effect the availability and cost of commercial and merchant banks reserve balance and thereby the overall monetary and credit conditions in the economy.
The main objectives of such actions, according to the author, is to ensure that over time, the expansion of money and credit will be adequate for the long run needs of the growing economy at stable prices. In addition, Alanson and Orchard (1983: 12 49) state that monetary policy consists of methods by which the monetary authorities seek to control changes in money stock and cost availability and purpose of credit in order to achieve the various marco economic objectives of government which are price stability, low unemployment rate, sound balance of payment position, encouraging economic growth and so on.

EFFECTIVENESS OF MONETARY POLICY IN CONTROLLING INFLATION
For more Info, call us on
+234 8130 686 500
or
+234 8093 423 853

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  • Type: Project
  • Department: Banking and Finance
  • Project ID: BFN1989
  • Access Fee: ₦5,000 ($14)
  • Pages: 35 Pages
  • Format: Microsoft Word
  • Views: 134

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