Economic and Financial Review


Central Bank of Nigeria


Interest rates, Credit, Monetary Policy, Monetary Conditions, Nigeria


The paper aims to construct a monetary conditions index (MCI) for Nigeria to aid the evaluation of the stance of monetary policy. Quarterly data for 91-day treasury bill rate (TBR), real exchange rate (RER), inflation rate (INF), real private sector credit (RCP), and real gross domestic product (RGDP), covering the period 2000Q1 to 2014Q1, were utilised. The period coincided with key reforms in the money and foreign exchange markets, culminating in the adoption of a new monetary policy framework in 2006. Following some econometric diagnostic tests, an aggregate demand function was estimated using the Johansen co-integration technique. The resultant long-run coefficients were applied to the deviations of the MCI component variables to derive the monetary conditions indices. The narrow and broad MCIs suggested a relatively tight monetary environment with the broad MCI being more volatile, compared with the narrow MCI due to the inclusion of the credit component, which reflects the continual swings in banking system liquidity. Our findings revealed that the exchange rate is a strong channel of monetary policy transmission mechanism in Nigeria, and thus very crucial in the conduct of monetary policy.

Author Bio

The authors are staff of the Monetary Policy Department, Central Bank of Nigeria.

Publication Title

CBN Economic and Financial Review





Recommended Citation

Tule, M. K., Isah, A. M., Okafor, P. N., Pedro, I., Ukeje, S. A., Oji, K., & Oladunni, S. (2014). Nigeria's Monetary Conditions Index. CBN Economic and Financial Review, 52(3), 1-26.

Included in

Finance Commons



To view the content in your browser, please download Adobe Reader or, alternately,
you may Download the file to your hard drive.

NOTE: The latest versions of Adobe Reader do not support viewing PDF files within Firefox on Mac OS and if you are using a modern (Intel) Mac, there is no official plugin for viewing PDF files within the browser window.