Empirical analysis of fiscal dominance and the conduct of monetary policy in Nigeria

Joseph Olarewaju Afolabi and Oluwafemi Atolagbe

MPRA Paper from University Library of Munich, Germany

Abstract: The study empirically investigates fiscal dominance and the conduct of monetary policy in Nigeria, using quarterly data from 1986Q1 to 2016Q4. It adopts the vector error correction mechanism (VECM) and cointegration technique to analyze the data and make inference. The findings reveal that there is no evidence of fiscal dominance in Nigeria. The empirical results show that budget deficit, domestic debt and money supply have no significant influence on the average price level. However, budget deficit and domestic debt are shown to have significant influence on money supply, but only in the short-run. The policy implication is that the government should enforce fiscal discipline through the appropriate institution and the Central Bank should be given autonomy to perform the primary function of long-term price stability, among other functions.

Keywords: Fiscal dominance; fiscal policy; monetary policy; VECM; Nigeria. (search for similar items in EconPapers)
JEL-codes: E52 E58 E62 E63 (search for similar items in EconPapers)
Date: 2018-09-02
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:88786

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