An Investigation of the Effectiveness of Monetary Policy on Economic Stability: The Case of Nigeria

The study focused on the investigation of a selected instrument of monetary policy on inflation control from 1970-2018. The time-series data were tested for stationarity using Augmented Dickey-Fuller (ADF). The order of integration of the variables led to the adoption of the method of Autoregressive Distributive Lag (ARDL). The cointegration test showthat the long-run relationship between the dependent variable (inflation rate) and the independent variables (broad money supply, exchange rate, interest rate and cash reserve ratio). The short and long-run ARDL results showed that the broad money supply and the exchange rate is inversely related to inflation but at an insignificant level while interest rate and cash reserve ratio have a positive relationship with inflation rate although at an insignificant level. The overall results showed that the variables have not impacted significantly on economic stability at the period of study, hence among therecommendations made include the following: the monetary authority has to avoid the adoption of uniform interest rate for all sectors of the economy; efforts are required to intensify cashless society; the monetary the authority should, by all means, tackle the pending and ugly trend in exchange rate and encourage more production of goods and services.