Monetary Policy Measures and Commodity Price in Nigeria: An Auto-Regressive Distributive Lag Approach

Abstract

This study investigated the impact of monetary policy measures on commodity price in Nigeria from 1990 to 2022. Data for the study were obtained from the Central Bank of Nigeria data source and the World Bank’s World Development Indicators 2022.  Real interest rate, cash reserve ratio, Broad money supply, Treasury bill rate, and exchange rate are adopted to proxy monetary policy while commodity price index is employed to capture commodity price. The individual series were subjected to unit root tests using the Augmented Dickey Fuller approach and the diagnoses established mixed orders of I(0) and I(1) integrations, thereby necessitating application of the Auto-Regressive Distributive lag bounds test as well as the long-run and error correction versions. The analyzed model’s result established that real interest rate is positive but statistically insignificant with commodity price in the long-run and the most current year period of the short-run while cash reserve ratio had a positive and significant relationship with regress and in the long-run. Also, it was evident that broad money supply had a negative but significant relationship with commodity price in the current period of the short-run. Moreso, Treasury bill rate and commodity price revealed that the former had a negative but significant relationship with the latter in the current period of the short-run. Finally, the official exchange rate exerted a positive but insignificant ramification on commodity price both in the long-run and previous year period of the short-run. Hence, it is concluded that monetary policy fundamentals as captured here had significant push-up effect on commodity price in Nigeria. Thus, the need for suggesting amongst others that the monetary policy authority should attractively peg the price of federal government’s securities, moderate money supply and interest rate to enhance monetary stability for driving diversified private sector investments which if sustained will dampen commodity price in the long-run.

Keywords: Monetary Policy, Commodity Price, Real Interest Rate, Cash Reserve Ratio, Treasury Bill, Exchange Rate Broad Money Supply.