Empirical Analysis of the Effects of Monetary Policy Innovations on Stabilization of Commodity Prices in Nigeria

Empirical Analysis of the Effects of Monetary Policy Innovations on Stabilization of Commodity Prices in Nigeria

Author by Dr. Andy Okwu

Journal/Publisher: European Journal Of Economics, Finance And Administrative Sciences

Volume/Edition: 32

Language: English

Pages: 64 - 79

Abstract

This study examined the effects of monetary policy innovations on stabilization of commodity prices in Nigeria. The design is basically exploratory in that the study leaves room for further study in the area. The methodology is empirical econometric analysis approach. Variables used for analysis were consumer price index (CPI), broad money aggregates (BMA) and monetary policy rate (MPR). These variables were considered appropriate indicators of monetary policy innovations and commodity price responses. Main tool of analysis was 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. CPI as a proxy for commodity prices was treated as response variable while BMA and MPR were treated as causal variables. Data on the variables were used to estimate parameters of the model via the OLS techniques. Estimates of model parameters were evaluated based on relevant statistics from the regression output. The result showed that positive relationship existed between the respective indicators of monetary policy innovations and indicator of commodity prices. Also, monetary policy rate had more immediate effect than broad money on consumer price index, and that commodity prices responded more to monetary policy rates than to broad money aggregates. The result also indicated that, although both broad money and monetary policy rate exerted positive effect on commodity prices, only broad money exerted significant effect at 0.05 level of significance. However, overall effect of both on commodity prices was statistically significant. Consequently, the study recommended, among other things, that the Central Bank of Nigeria should always determine optimal mix of both policy variables to ensure stabilization of consumer goods and other commodity prices and engender confidence in the Bank’s monetary policy


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