Fiscal Dominance and Monetary Policy Efficacy in Nigeria

Abdulmajeed Kumo Bello, Joshua Adams Ndako, Fadimah Yusuf and Amodu Amina Ejura
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Abdulmajeed Kumo Bello: Monetary Policy Department, Central Bank of Nigeria, Central Business District, FCT Abuja
Joshua Adams Ndako: Monetary Policy Department, Central Bank of Nigeria, Central Business District, FCT Abuja
Fadimah Yusuf: Monetary Policy Department, Central Bank of Nigeria, Central Business District, FCT Abuja
Amodu Amina Ejura: Monetary Policy Department, Central Bank of Nigeria, Central Business District, FCT Abuja

International Journal of Research and Innovation in Social Science, 2023, vol. 7, issue 10, 857-877

Abstract: This study examines the effects of fiscal dominance on monetary policy efficacy in Nigeria. Specifically, it examines the extent to which fiscal deficits influenced the growth of money supply and inflation in Nigeria. It utilizes money growth accounting as the framework, and it is estimated through the Autoregressive Distributed Lag (ARDL) Model to achieve the objectives of the study. The results show that fiscal deficit has a positive and significant relationship with the inflation rate in Nigeria. This indicates evidence of fiscal dominance for Nigeria and that fractions of Nigerian inflationary pressures emanate from fiscal deficits, thus, hampering the efficacy of monetary policy. The study, therefore, suggests that policy attempts to stabilize prices in Nigeria must not only be monetary in nature but must also take cognizance of fiscal actions into considerations. Hence, there is need for continuous fiscal-monetary policy coordination to ensure a delicate balance between the duo in achieving key macroeconomic objectives.

Date: 2023
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