NIGERIAN INFLATION DYNAMICS AND ECONOMIC GROWTH: ARE THE MONETARY POLICIES WORKING?

Abstract This study investigates the dynamic relationship between inflation and economic growth in Nigeria, with a particular focus on the effectiveness of monetary policy instruments in achieving macroeconomic stability. Using monthly time series data and an Error Correction Model (ECM), the research evaluates both short- and long-run effects of monetary policy variables—including interest rate, reserve ratio, exchange rate, money supply, and credit to the private sector—on inflation and Economic growth, proxy by changes in GDP. The findings reveal that while monetary policy instruments such as interest rate and reserve requirements significantly influence inflation in the short term, their delayed impact and weak transmission to real output highlight structural challenges in Nigeria's monetary framework.. Exchange rate depreciation and private sector credit growth emerged as key drivers of inflation. The ECM results confirmed a rapid speed of adjustment to long-run inflation equilibrium, while Granger causality tests showed a unidirectional causality from inflation to GDP, indicating that inflation significantly affects economic output but not vice versa. The study concludes that although monetary policies in Nigeria are partially effective in controlling inflation, their ability to stimulate sustainable economic growth remains weak. Accordingly, it recommends strengthening monetary transmission channels, stabilizing the exchange rate, and coordinating monetary policy with targeted fiscal interventions to enhance overall policy effectiveness.