Investigating the monetary and fiscal policy regimes dominance for inflation determination in Nigeria: a Bayesian TVP-VAR analysis

Olusola Joel Oyeleke, Lukman Oyelami and Adeyemi A. Ogundipe

International Journal of Computational Economics and Econometrics, 2022, vol. 12, issue 3, 223-240

Abstract: Persistent increase in general price level has been generating policy issues between monetary and fiscal authorities in Nigeria. This study explores dominance of policy regime (monetary versus fiscal) and extends the analysis to inflation determination in Nigeria from 1981 to 2016. The study makes use of secondary data sourced from Central Bank of Nigeria (CBN) Statistical Bulletin (2016). Stationarity properties of the variables are examined using augmented Dicky-Fuller (ADF) and Philip-Perron (PP) unit root tests. Johansen co-integration test results show the presence of long run relationship among the variables. The study employs Bayesian time varying parameter vector auto regression (TVP-VAR) with stochastic volatility and draws sample with MCMC to generate impulse response functions. The results show that there is no definite policy regime dominating in the economy of Nigeria. The implication is that inflation problem could not be attributed to a particular policy regime. Therefore, for ease of adjustments, a definite policy regime should be allowed to prevail to achieve price stability in the economy of Nigeria.

Keywords: Bayesian TVP-VAR; co-integration; determination; dominance; fiscal policy; monetary policy; Nigeria; impulse response functions; inflation. (search for similar items in EconPapers)
Date: 2022
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