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Evaluating the Impact of Money Market Instruments on Price Stability in Nigeria

UCHE, Stella Chisom, NWONYE, Nnenna G., UGWUANYI, Callista Chinenye, UKPAI, Kalu Ukpai

Abstract

Money market obviously has been among the prominent topics in global discourse concerning steering an economy on an even keel. Nigerian economy has been battling with inflation for the past seven years and it is becoming worse since 2022 with unprecedented galloping inflation with its resultant untold economic discomforts. Consequently, this study with an annual data range 1990 – 2021 is an evaluation of the impact of money market instruments on price stability in Nigeria. using indicators such as Treasury Bills (TB), Discount Windows (DCW), Mutual Funds (MTF), and Risk Premium Lending rate (RPL) to measure money market instruments; and measures such as consumer price index (CPI) and Gross domestic product deflator (GDP- Deflator) measured price stability; while we controlled inflation rate (INF) and exchange rate (EXR). In addition, the results of the CUSUM and CUSUMSQ graphs show that there is no evidence of instability in the series of data from 1990 to 2021. Evidence from the main findings shows that while negative and significant long-run relationships exist between CPI and money market instruments, positive and significant long-run relationships exist between GDP-Deflator and money market instruments in Nigeria. The study concludes that negative long-run relationships exist between money market instruments and price stability in Nigeria hence recommends that government should checkmate the rule of law, governance, regulatory quality, and overall institutional quality to improve the stability of the price of all commodities including money market instruments.

Keywords

Money market; Inflation; Market instruments; ARDL; CPI; GDP-Deflator

References

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