A Test of the Monetary Theory of Inflation: An Experiment with Nigerian Data

The study empirically investigated the monetary theory of inflation using Nigerian data from 1980 to 2022. Annual data on the inflation rate, monetary policy rate, exchange rate, interest rate, and money supply were sourced from the Central Bank of Nigeria (CBN), the Nigeria Bureau of Statistics (NBS) and the World Development Indicators (WDI). The study regressed inflation rate as the dependent variable on the monetary policy rate, exchange rate, interest rate and money supply as the independent variables using the Autoregressive Distributed Lag (ARDL) model. The findings revealed that monetary policy rate, exchange rate, interest rate and money supply (Monetary Policy) were not statistically significant in influencing inflation in Nigeria. The study found that the first inflation lag was statistically significant at the one per cent level. The finding implies that inflation expectations cause inflation in Nigeria. The study recommends that the Nigerian government should formulate and implement other economic policies along with the monetary policy to control prices to reduce inflation in Nigeria