Assessment on the Effectiveness of Monetary Policy on Economic Stabilization

Assessment on the Effectiveness of Monetary Policy on Economic Stabilization.

ABSTRACT

The highly unstable economic conditions in Nigeria have been a major source of concern among economist and policy makers in recent time.

These economic problems can be attributed to the existence of market failure and the inability of the mechanism to efficiently allocate scarce resources among economic agent.

This research work is sets out to examine the extent to which government Interventions through monetary policy have been able to regulate the economy by ensuring the general price stability and economic growth.

From the research work, we discovered that monetary policy through the use of the instruments of interest rate, exchange rate, treasury bills and money supply has been a major instrument used to boast economic growth and achieve economic stabilization.

This work also viewed the different schools of thought and their option about the use effects and setbacks of monetary policy in stabilization of an economy, the classical and the Cambridge model viewed money as a store of value and they believed that increase in money will cause some increase in price.

INTRODUCTION

Monetary policy is the process by which the monetary authority of a country like the CBN or currency board, control the supply of money, often targeting an inflation rate or interest rate to ensure price stability and general trust in the currency.

Further goals of monetary policy are usually to contribute to economic growth and stabilization, to lower unemployment and to maintain predictable exchange rates with other countries.

Since the 1970’s, monetary policy has generally been formed separately from fiscal policy, which refers to taxation, government spending and associated borrowing. The main objective of monetary policy in Nigeria is to ensure price and monetary stability.

This was evident in the year 1988 – 1990 which was a prescriptive and restrictive one in terms of federal government monetary policies. The country was fully mortgaged to the external creditors like IMF, WORLD BANK, London and Paris club etc.

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