The Critical and Logical Analysis of the Impact of Monetary Policy on Macroeconomic Aggregates

Abstract

The study critically and logically analyzed the impact of monetary policy on macroeconomic aggregates (inflation and interest rate). The objectives were; to examine the effect of money supply, interest rate, cash reserve requirement on inflation. To ascertain the effect of monetary policy instruments on macroeconomic aggregate (inflation), secondary source of data was employed and extracted from Central Bank statistical Bulletin. Ordinary least square of multiple regression technique was used to statistically analyze the relationship between dependent and independent variables. The findings revealed that monetary policy had a positive impact on macroeconomic aggregate (inflation), also shown that monetary policy affected interest rate positively. The study recommended that effective monetary policy should focus on manipulating instruments and emphasis should be placed on the use of interest rates and inflation to manage the economy.

Keywords: Inflation, Interest rate