Monetary Policy and Assets Prices: The Role of Inflation Rate: New Evidence for Nigeria

This study examines the relationship between monetary and asset prices in Nigeria over the period of 1981 to 2014. This study has used variables that directly and indirectly affect the interest rates banks charge to investors, and determine how asset price will respond to the changes of these variables. The intuition of this is that since interest rate affects credits accessibility, its effect on the asset prices will be pronounced.  Using Autoregressive Distributed Lag model (ARDL), the results show that asset prices do not respond much to the monetary policy. This in effect will signify the policy direction by monetary policy decision makers would like to take. However, monetary policy should not be used as a sole method to regulate the asset market. Moreover, on adopting a monetary policy, the focus should be more on inflation rate stability rather other policy instruments at their disposal.