Impact of Open Market Operations and Money Supply on Inflation in Nigeria

The results of monetary policy outcomes suggest that Nigeria does not often enjoy ideal conditions to adopting a monetary policy regime aimed primarily at stabilizing prices due to increasing internal debt resulting from sales of government securities. This has also push-up the volume of money supplied into her economy. This has made the economy particularly exposed to price and quantity-type external shocks, which renders price stabilization all the more complicated. This study examines the impact of open market operations and money supply on inflation rate in Nigeria within the period of 1981-2016. Using the vector error correction model approach, the result revealed that Treasury bill, government bonds, and money supply have positive and significant relationship with inflation rate in Nigeria. However, total value of money market instruments, income per capita and interest rate had negative and significant impact on inflation rate in Nigeria. The study concluded that open market operations while controlling the supply of money had significantly impacted on price stability in the long-run in the Nigerian economy. The study suggests that there is need for an increase use in the open market operations as a tool for achieving stability of price in the country.