Monetary Policy, Bank Lending and Inflation in Nigeria: VAR Approach
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Kashere Journal of Humanities, Management and Social Science
This paper investigates whether monetary policy (minimum rediscount rates, currency outside banks, net domestic credit, demand deposit and exchange rate) and commercial bank lending can provide a convincing explanation for monetary inflation in Nigeria, over the period 1980- 2010. The analyses are performed using data derived from the central bank statistical bulletin of Nigeria. This period was selected on account that it marks the beginning of indirect monetary policy regime in Nigeria. Applying the ADF to determine the stationary state of our data, the result shows that all the variables are not stationary at their level but at first difference. As such we apply the Vector Auto Regression (VAR) technique to determine the effects of monetary policy and bank lending on inflation. Therefore, a co-integration test was carried out to test the existence of a long run relationship in our data. Our findings show that monetary policy and bank lending rate do affect inflation partially. The paper also reveals that exchange rate has a little or negligible insignificantly effects on inflation. Therefore, the conclusion from our paper is that monetary policy and commercial bank lending inflation can provide partial explanation effects of inflation rate in Nigeria economy.
Monetary Policy , Bank Lending , Inflation , VAR
Odior, E. S (2013), ‘Monetary Policy, Bank Lending and Inflation in Nigeria: VAR Approach’ Kashere Journal of Humanities, Management and Social Science, Federal University, Kashere, Gombe, Nigeria, Vol. 1, No. 1&2, Pp, 134-149