DOES MONETARY POLICY INSTRUMENT EFFECT POSITIVELY ON INFLATION DYNAMICS IN NIGERIA ECONOMY 1980 -2020?

This paper examined the effect of monetary policy instruments on inflation dynamics in Nigeria economy for the period 1980-2020. The main objective of the study is to; investigate whether the inflationary dynamics significantly respond to shocks from the selected monetary variable instrument in Nigerian economy. The study made used of vector error correction model (VECM) approach, unit root tests, Co-integration Test and Granger Causality. Based on the above econometric and statistic techniques conducted, it was observed that Inflationary dynamics in Nigeria dose significantly respond to shocks from the selected monetary instrumental variables. The results raveled both directional and direct nature of causality relationship between the variables in the model during the period of the study 1980-2020. Based on these findings, the researcher recommends that; the key policy implication of the findings is that the CBN should continue to factor growth in monetary aggregates in its monetary policy instrument considerations aimed at achieving price stability while keeping a keen eye on financial innovations and their impact on money supply. The literature has called the policy tool that is associated with the chosen active policy approach. Each policy approach came with a measure of effectiveness. When they are all brought together, this provides a way to compare approaches that does not rely solely on whether one finds some assumptions more convincing than others do, but can be backed with estimates of their effectiveness.