EconPapers    
Economics at your fingertips  
 

Inflation, exchange rate and efficacy of monetary policy in Nigeria: The empirical evidence

BigBen Chukwuma Ogbonna

Academicus International Scientific Journal, 2016, issue 13, 40-53

Abstract: 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.

Keywords: Monetary policy; Exchange rate; Inflation; Money Growth; Nigeria (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed

Downloads: (external link)
http://www.academicus.edu.al/nr13/Academicus-MMXVI-13-040-053.pdf (application/pdf)
http://www.academicus.edu.al/nr13/Academicus-MMXVI-13-040-053.html (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:etc:journl:y:2016:i:13:p:40-53

Access Statistics for this article

Academicus International Scientific Journal is currently edited by Arta Musaraj

More articles in Academicus International Scientific Journal from Entrepreneurship Training Center Albania Contact information at EDIRC.
Series data maintained by Gabor Vasmatics ().

 
Page updated 2017-09-29
Handle: RePEc:etc:journl:y:2016:i:13:p:40-53