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Monetary policy is usually the responsibility of the monetary authority which comprises the Central Bank and the Federal Government. In Nigeria, while the Central Bank exercises primary responsibilities for initiating, implementing and appraising such policies, the banks proposals are subject to ratification by the federal government. Monetary policy measures are monetary management techniques put in place by the government through the central bank. These measures rely on the control of money stock, supply of money in order to influence broad macro-economic objectives, which include price stability, high level of employment, sustainable economic growth and balance of payment equilibrium. These broad objectives are achieved through the use of appropriate instruments, depending on which objective, the policy formulate wants to achieve and also on the level of development of the economy.

In the application of monetary policy measures as an instrument of monetary policy, the problem are determined its nature to be solved by the environment in which the problems exist. There are broadly two categories of these instruments, Viz; indirect and direct. Indirect instruments are usually used in market based economics where the quantity of money stock can be affected through the relationship between money supply and reserve money as well as the ability of the monetary authority to influence the creation of reserves. The reserves and hence, monetary supply, can be affected through the following ways:

  1. Change in reserve/deposit ratio
  2. Change in discount rate
  3. Interest rate change and
  4. Engaging in open market Operation (OMO)

In an under-developed financial environment the instruments of monetary management are largely limited to direct measures which set monetary and credit targets at desired levels. The major direct control measure is direct interest regulation however; quantitative ceiling on over all credit operations is also used. These instruments of monetary policy are applied in the achievement of various objectives. However, all such objectives are in consonance with the broad objectives of the 1st National Rolling Plan (1990-1992) which are:-

The consolidation of the achievements made so far in the implementation of the structural adjustment Programme (SAP). The plan is also to deal with pressing problems of inflation, unemployment, the selfish performance of the productive sectors particularly manufacturing and the inadequate availability of foreign exchange with aim of achieving of non-oil exports. Other socio-economic problems to be addressed by the plan includes the high growth rate of population, threats to the environment and the menace of anti-social behaviours such as armed robbery and other juvenile delinquene. These broad objectives can be broken down to more direct objectives viz; a high level of employment; price stability; a sustainable level or economic growth and balance of payment equilibrium.

However, the effectiveness of monetary policy measure against which background of objective was formulated has raised serious doubts as to the continuous use of these policy measures. It is in the light of there above theoretical background that the researcher took time to carry out a study of monetary policy measures as instruments of economic stabilization.


Over the years, so many instruments of monetary policy have been in vogue not to gear-up the level of instability, lack of sustainable economic growth, balance of payment disequilibrium, inability to mobilize domestic savings and unsatisfactory expansion of domestic output. But most strikingly these problems have continued to plague the economy of Nigeria unabatedly. It is against this background that the researcher went into this study to re-appraise, analyze the various monetary instruments and ascertain the process of these measures against the desired objectives.


The objectives of this paper are as follows:

  1. To appraise and analyze the objectives of various monetary policy instruments and to know whether they are really measures for economic stabilization.
  2. To ascertain the level of success of monetary instruments policy measures in Nigeria economic stabilization from the relevant year i.e. 2002-2006.
  3. To identify factors that tend to hinder the full attainment of the desired objective for which monetary policy instruments where set up.


The underlisted are the research questions that will help in this study

  • Are monetary policy an effective measures of economic stabilization?
  • How far have monetary policy measures been able to stabilize the economy of Nigeria?
  • Are there factors that hinders various monetary policy instruments from achieving the desired objective of which they were set up?


H0: Monetary Policy Instruments are not an effective measures of economic stabilization.

H1: Monetary Policy Instruments are an effective measures of economic stabilization.

H0: Monetary Policy Instruments have not been able to bring economic stabilization in Nigeria economy.

H1: Monetary Policy Instruments have been able to bring economic stabilization in Nigeria economy.

H0: There are no factors hindering monetary policy instruments in achieving economic stability in Nigeria economy.

H1: There are factors hindering monetary policy instruments in achieving economic stability in Nigeria economy.


This research provides an insight into monetary policy measures as an instruments of economic stabilization. It will therefore be of invaluable use to the following:

To student, it will provide a complement to the few existing tests on money policy and economic stabilization.

To researchers, it will serve as a valuable source of data

To policy makers, this study will be of immense value because it;

  • Highlights the mechanism for the operation of monetary policy against achieving set goals and objectives
  • Examines the arrears of conflict between monetary and fiscal policies.
  • Analyze the problems facing the full implementation of monetary policy measures, and
  • Suggests solution to such identified problems. As such policy makers will find its recommendations invaluable in formulating new ideal measures for the achievement of economic stability.

Investors are not left out, this work will serve as a guideline on the effects of monetary policy on various sectors of the economy in which their funds can be invested. And lastly, to the ordinary reader, this work will serve as an eye opener and a valuable stock of knowledge.


The limitation of this study are:

The restriction of data pertaining to certain sectors of economy. It therefore becomes difficult to assess the impact of money policy on such sectors. The ill-defined measurement of economic stability is another limitation of this study. This as a result of the fact that one economic indicator may fall within the ideal range while others do not. Therefore it becomes difficult to say accurately and conclusively that the economy is stable.

Another limitation to this study is the erratic nature of government in Nigeria, that causes great deal of instability in government, therefore making economic policy of which monetary policy is one, is not stable. This makes the implementation of monetary policy faulty as policy measures, keep changing with advent of each new government.

One other limitation of this study is the inability of monetary authority to provide adequate statistics on the performance of monetary policy measures adopted by them. This is largely due to the problem of ill action of citizen who attempts to thwart the efforts of the monetary authority.


MONETARY POLICY:- Instruments of stabilization and economic development. They are measures, or a combination of measures designed to influence or regulate the volume, price and direction of money and credit.

MONEY STOCK: The amount of money in circulation at any point in time. This is variable and could be affected.

RESERVE MONEY: This is also known as reserve. It it the amount of fund a bank is required to maintain it’s faults.

RESERVE RATIO: This is ratio of the deposit that the banks are required to maintain with the central bank.

DISCOUNT RATE: This is the rate at which the central banks makes loan to the commercial banks as a lender of last resort.

LENDERS OF LAST RESORT: This term is used to quality the central banks. When banks are cash strapped, it is the central bank that lends to them when there are no other alternatives.

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