Ph.D. Candidate, School of Graduate Studies, Universiti Putra Malaysia Department of Economics, Faculty of Arts, Social and Management Sciences, Adamawa State University, P.M.B. 25 Mubi, Adamawa State, Nigeria Department of Banking and Finance, College of Administration and Business Studies, Adamawa State Polytechnic, P.M.B. 2146, Yola, Adamawa State, Nigeria __________________________________________________________________________________________ Abstract: This paper empirically examines the role of output gaps in determining future inflation rate, and the extent real output deviations will be accounted for by changes in real interest rate in Nigeria. The study revealed that the actual behaviour of the central bank in Nigeria place little importance on deviations of real income relative to inflation changes. Generally, for the case of monetary transmission mechanism effect on the real output, our findings suggest that the behaviour of the monetary policy instruments have no significant effect on the deviations of real economy from its potentials. These findings suggest that monetary policy committee of the central bank should consider strategies that can enhance public confidence and support.