The Dance of Two Instruments: How Fiscal and Monetary Policy Interact in Nigeria

Adediwura, Olamide M. and Adegboye, Abiodun A. and Alao-Owunna, Ifeoluwa and Ayoade, Olabisi (2024) The Dance of Two Instruments: How Fiscal and Monetary Policy Interact in Nigeria. Asian Journal of Economics, Business and Accounting, 24 (5). pp. 325-340. ISSN 2456-639X

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Abstract

This study examined the nature of the interaction between fiscal and monetary policies in Nigeria. It also investigates the channels through which impulses from fiscal and monetary policy interaction are transmitted to inflation, output and exchange rate. These were intended to provide information on the nature of interaction between fiscal and monetary policies in Nigeria. Quarterly secondary data covering the period between 1980Q1 and 2022Q1 were used in the study. Data on real gross domestic product, consumer price index, lending rate, real exchange rate and total government expenditure were sourced from international financial statistical (2022Q4 Edition) and Central Bank of Nigeria (CBN) Statistical Bulletin (2009 and 2022Q4 Issues). Structural Vector Autoregression (SVAR) econometric model was employed for the analysis of data. The results showed that interaction between fiscal and monetary policy in Nigeria is characterised by the way shock occurred. This indicated that the interaction between both policies showed a substitutive nature when the shocks resulted from aggregate demand and supply shocks, whereas the policies complemented each other when other macroeconomic shocks occur due to policy changes occurred. The study also revealed that investment and consumption are the channels through which impulses are transmitted into inflation, output and exchange rate. The study concluded that the nature of relationship between fiscal and monetary policy is dependent on shocks.

Item Type: Article
Subjects: Asian STM > Social Sciences and Humanities
Depositing User: Managing Editor
Date Deposited: 08 Apr 2024 04:10
Last Modified: 08 Apr 2024 04:10
URI: http://journal.send2sub.com/id/eprint/3209

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