Generally, monetary policies seek to achieve relative macroeconomic stability. Based on countries’ experience especially that of Nigeria on the role of monetary policy in controlling economic stability, this study examines the efficacy of monetary policy in controlling inflation rate and output fluctuation and taking into cognizance the evaluation and framework of monetary policy in Nigeria. Using annual data spanning over 1985-2008 and applying the Ordinary Least Square (OLS) technique on the data used, the paper shows that the effort of monetary policy in influencing the finance of government fiscal deficit through the determination of inflation-tax rate affects both the rate of inflation and real output, thereby causing volatility in their rates. The result data analysis shows that there is a positive relationship between the real gross domestic product, exchange rate and money supply but a negative relationship exists between real gross domestic product and interest rate. The policy import of the paper is that monetary policy should be set in such a way that the objective is to be achieved well defined.