Paul Ndubuisi / Elixir Fin. Mgmt. 118 (2018) 50940-50946 50940 1.0 INTRODUCTION The Nigerian economy has been plagued with several challenges over the years. Nigeria has not been able to effectively tap or harness her economic potentials for rapid economic development inspite of frequent changes in monetary and other macro-economic policies (Ogwuma, 1996). Monetary policy is therefore defined as a combination of measures designed to regulate the value, supply and cost of money in the economy in consonance with the expected level of economic activities (CBN, 1995). It is the deliberate use of monetary instruments at the disposal of monetary authorities such as Central Bank in order to achieve macroeconomic stability. Monetarist strongly believe that monetary policy exact greater impact on economic activity as unanticipated change in the stock of money affects output, prices and growth. Monetary policy is essentially the tool for executing the mandate of monetary and price stability. It is essentially a program of action undertaken by monetary authorities to control and regulate the supply of money and flow of credit to achieve predetermined objectives (De Gregorio (1993). The importance of monetary policy implementation in any economy cannot be over emphasized as excess supply of money would result in excess demand for goods and services resulting to inflation and deterioration of balance of payment position. On the other hand, inadequate supply of money could induce stagnation in the economy thereby retarding growth and development. Consequently, monetary authorities must strive to keep the supply of money at an appropriate rate to ensure price stability and sustained economic growth. In Nigeria, the achievement of price stability is predicated on monetary policy stance (Idowu, 2010, Nenbee and Madume 2011). Also the major objectives of monetary policy are the attainment of price stability and sustainable economic growth. The associated objectives are those of full employment, stable long-term interest rates and real exchange rates. In pursuing these objectives, the CBN recognizes the existence of conflicts among the objectives necessitating at some point some sort of trade-offs (Uchendu, 2010). The Bank manipulates the operational target (Monetary Policy Rate, MPR) over which it has substantial direct control to influence the intermediate target (broad money supply M2) which in turn impacts on the ultimate objective price stability and sustainable growth (Okafor, 2009, Uchendu, 2009). The Central Bank of Nigeria (CBN), achieves the monetary policy goals through the amount of money supplied. Money supply comprises narrow and broad money. Narrow money includes currency in circulation and demand deposit in the banks. The broad money (M 2 ) includes narrow money (M 1 ) plus savings and time deposits as well as foreign denominated deposits (CBN, 2011). The broad money measures the total volume of money supply in the economy. Thus excess liquidity may arise in the economy when broad money is over and above the output level. This causes inflation. The need to regulate money supply is based on the fact that there a stable relationship between the quantity of money supply and economic activity and that if its supply is not regulated it generates inflation (Sanusi, 2009; Soludo; 2009, CBN, 2010). There is a consensus that price instability undermines the role of money as store of value and frustrates investment and growth. (Nnanna, 2001). The primary and current monetary framework focuses on the maintainance of price stability, stable exchange rate and promotion of economic growth. The problem statement of this research is centered on the fact that inflation rate in Nigeria has been fluctuating taking Tele: E-mail address: pauloabsu2017@gmail.com © 2018 Elixir All rights reserved ARTICLE INFO Article history: Received: 13 April 2018; Received in revised form: 20 May 2018; Accepted: 30 May 2018; Keywords Monetary policy, Transmission, Mechanism, Inflation, Money supply, Economic growth. The Responsive of Inflation to Selected Monetary Policy Instrument in Nigeria-Empirical Analysis Paul Ndubuisi Department of Banking and Finance, Abia State University, Uturu. Nigeria. ABSTRACT This study examines the responsiveness of inflation to monetary policy in Nigeria. The specific objective was to determine empirically the extent to which monetary policy had helped in achieving general price stability in Nigeria within the chosen scope. Data for the study were obtained from secondary sources. The ordinary least square, Augmented Dickey Fuller (ADF) unit root test, Johansen Co-integration test, as well as parsimonious Error Correction Mechanism method were adopted to analyse the data. The results revealed that the impact of regulatory instrument on inflation was relatively low indicating that monetary policy was not a good predictor of inflation rate in Nigeria. Results also revealed non-stationarity at level form rather stationary after first differencing; and integrated at order one 1(1). Further revelations indicated that a long- run relationship existed among the variables and showed the presence of one co- integrating vector in the model. The study offers some important policy implication: the government should complement monetary policy with fiscal policy to attain macro- economic objectives, diversifying the economy and encourage local productivity to stabilize prices. © 2018 Elixir All rights reserved. Elixir Fin. Mgmt. 118 (2018) 50940-50946 Finance Management Available online at www.elixirpublishers.com (Elixir International Journal)