Abstract
This paper uses daily data for the period 2005-2011 to estimate the effects of monetary policy signals on the Nigeria Interbank Offer Rates. After controlling for the contemporaneous effect of the policy action taken at each meeting of the Monetary Policy Committee, we found that these rates are significantly more volatile in the weeks the meetings hold. We identify the higher volatility of the rates as the signalling effect of monetary policy communication. This, we argue, suggests that central bank communications is potentially a viable tool of monetary policy implementation in Nigeria. The paper suggests that the Central Bank of Nigeria should be careful in communicating to the markets and should have an optimal communication strategy.
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