Is the Phillips curve useful for monetary policy in Nigeria?

Carlos García

ILADES-UAH Working Papers from Universidad Alberto Hurtado/School of Economics and Business

Abstract: The objective of this article is to determine if the Phillips curve is a relevant tool to conduct monetary policy in African countries wishing to adopt an inflation-targeting regime. I choose Nigeria as a case of study because it is in the early stage of the implementation of this regime. I estimate a medium-sized model for monetary policy analysis. The model reflects a synthesis between the New Keynesian and the Real Business Cycle (RBC) approaches. Then I estimate the model by using Bayesian econometric technique in order to overcome the shortage of data availability. The study concludes that there is evidence that central banks can control the inflation rate through a Phillips curve, a Taylor rule that includes the exchange rate, and the sterilization of the resources from oil exports. Nevertheless, there are limits to the stabilization program. The same evidence suggests that it is important to implement a credible inflation-targeting regime to reduce inflation gradually, instead of abrupt stabilization attempts with high costs in lost output.

Keywords: Monetary policy; Phillips curve; inflation-target regime. (search for similar items in EconPapers)
JEL-codes: E31 E52 E58 O23 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2010-06
New Economics Papers: this item is included in nep-afr, nep-cba, nep-mac and nep-mon
References: View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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