• central bank
• Granger causality test
• impulse responses
• inflation targeting
• monetary policy.
• The Gambia
• vector autoregressive model

This dissertation evaluates if the Gambia is ready to adopt Inflation targeting (IT), a monetary policy framework that has gain prominence in the past three decades. The research examines one of the prerequisites, which is the link between monetary policy instruments and inflation. I employed the unrestricted Vector autoregressive (VAR) model ranging from 1980 - 2019 using select monetary policy and other macroeconomic variables to explore the various channels using Granger causality tests, impulse responses, and variance decompositions. The results show that, only broad money indicate having strong link to inflation, while the link between interest rates and inflation is rather indirect and weak. Moreover, government expenditure, exchange rate and output were found to have weak link to inflation. The paper concluded that, there is no strong, robust, reliable, and stable relationship between monetary aggregates and the goal variable, inflation. The research, therefore, recommends the Gambia to pursue an inflation targeting lite (ITL) until a reliable nominal anchor is found for the implementation of a full-fledged inflation targeting (FFIT).