Monetary Policy-Making in Nigeria: Does evidence support augmented Taylor Rule?

Abayomi Onanuga, Michael Oshinloye and Olaronke Onanuga ()

MPRA Paper from University Library of Munich, Germany

Abstract: This paper relies on the augmented Taylor rule to evaluate the reaction function of the historical path of nominal monetary policy rate in Nigeria in the period 1996:Q1-2014:Q4. The main technique of analysis is the GMM econometric approach and the reaction function is augmented with the real exchange rate. Evidence from the study suggests that the real output and exchange rate are both significant in explaining the path of monetary policy rate while the inflation variable was not statistically significant. Monetary policy reacts negatively to lagged real exchange rate and current real exchange rate but positively to lagged real output gap. We conclude that lag of real exchange rate has a greater effect on the policy rate consequently inflation targeting is not a primary objective of the CBN. Based on economic theory, the study recommends the adoption of Taylor rule because findings from such rule based approach can be used to stabilize output and inflation in Nigeria.

Keywords: Monetary Policy; Real Output; Inflation rate; Exchange Rate; GMM (search for similar items in EconPapers)
JEL-codes: C32 E52 F41 P44 (search for similar items in EconPapers)
Date: 2015-12-20
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published in Fountain Journal of Management and Social Sciences 1.5(2016): pp. 23-30

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/83329/1/MPRA_paper_83329.PDF original version (application/pdf)

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:pra:mprapa:83329

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().