View full metadata
Cite as
-
Full Title (English)
Academicus International Scientific Journal
-
Publisher
Academicus International Scientific Journal
-
ISSN
20793715 (Printed Journal)
23091088 (Online Journal)
-
Journal Volume Number
13
-
Journal Issue Date (YYYY/MM)
2016/01
-
Full Title (English)
Inflation, exchange rate and efficacy of monetary policy in Nigeria: The empirical evidence
-
By (author)
Affiliation
Department of Economics, Ebonyi State University Abakaliki, Nigeria, Dr.
-
Number of Pages
14
-
First Page
40
-
Last Page
53
-
Language of text
English
-
Publication Date
2016/01
-
Copyright
2016 Academicus
Main description
This paper analyses the post SAP persistence of inflation in Nigeria for the period, 1960-2008 with exchange rate, money supply and trade balance as preferred influential variables. To investigate the effect of policy switch from the period of direct instrument to the period of deregulation occasioned by SAP of 1986, we proceed to bifurcate the sample period into two, comprising the period of direct instruments of monetary policy, 1960 – 1985 and the period of indirect instruments of monetary policy, 1986 – 2008. Estimates from a vector auto regression model (VAR) of key macroeconomic variables demonstrate the weak link between money supply and inflation in the both time horizons, which suggests that the hypothesis that money supply is not an effective policy instrument for management of inflationary developments cannot be rejected for Nigeria. The results further suggest that in both time horizons, exchange rate has been identified as a singular most promising macroeconomic fundamental for both internal and external sectors adjustments. However, the deregulation of the domestic economy as occasioned by SAP has significantly diluted the efficacy of exchange rate as a monetary policy instrument for the management of Nigeria’s aggregate money stock and trade balance developments. These notwithstanding, the Central Bank of Nigeria can continue to play a stabilizing role in the economy through the continuation of prudent monetary policies and frequent interventions in exchange rate management to smooth out shocks.
Reference list of
10.7336/academicus.2016.13.03
Unstructured Citation
Phillips, P.C.B., Perron, P., (1988).Testing for a unit root in time series regression”, Biometrika 75, 335–346.
https://doi.org/10.1093/biomet/75.2.335
Unstructured Citation
Clarida, R. (2001).The Empirics of monetary policy rules in Open Economies. International Journal of Finance and Economics,
6 (4), 315-23.
https://doi.org/10.1002/ijfe.168
Unstructured Citation
Nnana, O. J. (2001). Monetary policy frame work in Africa: The Nigerian experience. Research Department, Central Bank of Nigeria.
Unstructured Citation
Muco, M., Sanfey, P., & Taci, A. (2004). Inflation, exchange rates and the Role of monetary policy in Albania. Anteon Corporation and EBRD.
Unstructured Citation
Song, Y. (1997). The real exchange rate and the current account balance in Japan. Journal of Japanese and International Economies,
11, 143-184.
https://doi.org/10.1006/jjie.1997.0378
Unstructured Citation
Dickey, D.A., & Fulller, W.A. (1979). Distribution of estimators for autoregressive time series with a unit root. Journal
of America Statistical Association, 74, 427-31.
https://doi.org/10.1080/01621459.1979.10482531
Unstructured Citation
Seymen, A. (2008). A critical note on the forecast error variance decomposition. ftp://ftp.zew.de/pub/zew-docs/dp/dp08065.pdf,
Discussion Paper No. 08-065.
https://doi.org/10.2139/ssrn.1266093
Unstructured Citation
Dickey, D. A. & Fuller, W. A., (1981). Likelihood ratio statistics for autoregressive time series with a unit root. Econometrica,
49 (4), 1057–1072.
https://doi.org/10.2307/1912517
Unstructured Citation
Muco, M., Sanfey, P., & Taci, A (2004). Inflation, Exchange rates and the Role of monetary policy in Albania. European Bank for Reconstruction and Development.