CHAPTER ONE INTRODUCTION 1.1          BACKGROUND OF THE STUDY

Governments, the word over seek to achieve certain macroeconomic objectives among which are prices, stability, economic growth and equitable balance of payments Dubon (2003) identify three main factors carries out by government in managing the economy as allocation distribution and stabilization. While is allocate resources to meet the basic needs of the society like construction of roads and defence etc. it ensures equity and fairness in distributing such resources as well as ensuring economic stability. The achievements of these adjective are hinged on the application of certain tools, which are fiscal and monetary policy instruments.

Amadi: (2006) defined monetary policy as a major economic stabilization strategy which involves measures designed by monetary authorities (central bank) to regulate and control the volume costs movement of money and credit in an economy to achieve some specified macroeconomic objective. They identify the objective of monetary policies as the attainment of pricestability in an economy and maintaining of balance of payment equilibrium and ensuring exchange rate stability.

Keyness (1940) posited that inflation mainly due to an increase in the quantity of money supply. It is important to stress that although inflation a monetary phenomenon, it is caused by both monetary and non monetary factors.

Amadi and Amadi (2006). Dubon (2003) also added that the monetary policy also plays significant role in making price stability in an economy by regulating the exchange rate which is the conduct through which monetary policies are transmitted into the real sector on the economy.

Monetary policies is executed through some instrument such as discount rate, open market operation changes in essence requirement etc. these technique hence varying affects their operation willingness and ability to influence the study and seeks to necessitate the impact of monetary policy on inflation in Nigeria.

Influence is the rate at which the general level of price for goods and services is rising and consequently, the purchasing and power of currency is falling.

1.2 STATEMENT OF THE PROBLEMS

Governments influenced in the economic activities of any nation has brought about the needs to achieve stated macroeconomic objective, which include price stability, attainment of balance of payments equilibrium and exchange rate stability among others. Monetary policy over the year has been greatly employed in bid to achieve these objectives. Keynesian economic philosophy postulates, that as the expansionary monetary policies, that money supply, uses and interest rate falls (Umoru and Uwubanwe 2013) this in turn encourage bank to land at a lower interest rate, thus stibulating investment and empowerment. The monetary authority in Nigeria has continued to manipulate monetary acquire in the country with view to achieving reduced interest rates that could trigger investment. Unmoru and Uwubanwe (2013) have noted that investment in Nigeria is dynamically instable. They stressed that instability may have been induced by the interest velocity that characterized investment expenditure in Nigeria. Obadan (2008) also identified minimum rediscount rate on investment. Empirical study shows that there is a more relationship between monetary policy and inflation. Thus the study seeks measure the relationship between monetary policy and price stability in Nigeria using annual data spanning from 1990-2015

1.3          OBJECTIVES OF THE STUDY

The general objectives of this study is to analyse the impact ofmonetary policy on inflation in Nigeria

Specifically the study seeks to achieve the following objective.

• To analyse the effects of selected monetary policy tools on inflation.
• To determine the strength and direction of causality between from selected monetary policy tools and inflation in Nigeria during the period under review.

1.4 RESEARCH HYPOTHESIS

The hypotheses designed for this study are

Ho1: There is no significant relationship between some selected  monetary policy instrument and inflation in Nigeria

Ho2: There is no granger causality between some selected monetary policy and inflation in Nigeria.

1.5 SIGNIFICANT OF THE STUDY

This study shall be useful to students and researchers as sources of literature as monetary policy debate. It will help monetary authorities to extent to which monetary policies help to achieve the macroeconomic goal of the government the funding form this study also has the potential of increasing the knowledge base of banking and finance students researchers banking and finance experts’ economic and even economic plainness and manager etc.

1.6 SCOPE AND LIMITATIONS OF THE STUDY

The study is intended to cover the period from 1990 to 2015. The study focuses on the impact of selected monetary policy investment on inflation in Nigeria, it intense to cover from 1990-2015,

1.7 ORGANIZATION OF STUDY

This study is organize in to five chapter the first chapter is concerned with the introduction it content the background, statement of the problems as well as the objectives of the study chapter two present the theoretical empirical reviews of related literatures. Chapter three contents the methodology adopted it expresses. The research design sources of data model specification and hypothesis while chapter four Present Data Analysis and Discussion of Funding.

Chapter four Present Data Analysis and Discussion of funding, chapter five contents the Summary Conclusion and Recommendations,

1.8 DEFINITION OF TERMS

The following terms have been expressed in the content in which they apply in this study.

• Monetary policy: is the macroeconomic policy laid down by the central bank. It involves management of money supply andinterest rate and is the demand side economic policy used by the government of a country to achieve macroeconomic objectives like inflation consumption, growth and liquidity.
• Liquidity ratio: refers to reserve requirement of a bank regulation that set the minimum reserve each bank must hold.

Cash ratio: is the ratio that measure a turn ability to pay off its current liabilities with only cash and cash equivalent is guaranteed to be accusable for creditors.

• Open Market Operation (OMO): refers to the buying and selling of government securities in the open market in order to expand or control the amount of money in the banking system, facilitated by the Federal Reserve.
• Price stability: is a situation with under inflation targeting, since base drift accepted in the latter.
• Economic growth: refers to as the increase in output brought about by increase in efficiency in the utilization of resource.
• Balance of payment: is a systematic record of the economic transaction that takes place between resident of a country and the rest of the world over a queen period of time, usually one year.