This paper empirical study the effectiveness of monetary and fiscal policy instruments in stabilizing Nigerian economy from 1981 - 2015. The data were sourced from Central Bank of Nigeria, National Bureau of Statistics and World Development Index (WDI). The data was tested for stationarity using Augmented Dickey Fuller (ADF test while the co-integration was conducted using Johansen’s methodology. Error Correction Model (ECM) was employed for the empirical analysis. The results show that, there is long run equilibrium relationship between monetary and fiscal policy instruments and economic growth in Nigeria. ECM has the expected negative sign and is between the accepted region of less than unity. This was confirmed by the positive relationship between money supply, government expenditure and revenue while interest rate and budget deficit have negative relationship with economic growth. Therefore, it recommended that there should be effective use of money supply and government expenditure as key instruments of monetary and fiscal policy in Nigeria in order to improve the economy. Also, government annual budget implementation and execution of projects should be monitored to ensure that the objectives of the budget is achieved, which include price stability, economic growth, increase employment, income distribution among others. This can be done by eliminating corruption, leakages of resources and inappropriate use of resources. Interest rate should the reduced to one-digit to encourage borrowing, increase investment and output. These will bring the economy to a steady state.
| Published in | Social Sciences (Volume 7, Issue 3) |
| DOI | 10.11648/j.ss.20180703.14 |
| Page(s) | 133-140 |
| Creative Commons |
This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited. |
| Copyright |
Copyright © The Author(s), 2018. Published by Science Publishing Group |
Monetary Policy, Fiscal Policy, Economic Growth, Error Correction Model
| [1] | Adefeso, H. A. & Mobolaji, H. I. (2010). The Fiscal-Monetary Policy and Economic Growth in Nigeria: Further Empirical Evidence. Pakistan Journal of Social Sciences, 7(2), 137-142. |
| [2] | Adegoriola, A. E. & Siyan, P. (2015). The Relative Impact of Money Supply and Government Expenditure on Economic Growth in Nigeria. Economy, [S. l.], 2(3), 49-57. |
| [3] | Ajisafe, R. A. & Folorunso, B. A. (2002). The Relative Effectiveness of Fiscal and Monetary Policy in Macroeconomic Management in Nigeria. The African Economic and Business Review, 3(1), 23-40. |
| [4] | Anderson, L. C. & Jordan, J. L. (1968). Monetary and Fiscal Action: A Test of their Relative Importance in Economic Stabilization, Monthly Review, Federal Reserve Bank of St. Louis (November). |
| [5] | Anna, G. (2012). The Relative Effectiveness of Monetary and Fiscal Policies on Economic Activity in Zimbabwe 1981:4 – 1998:3): An Error Correction Approach. International Journal of Management Sciences and Business Research, 1(5): 1-35. |
| [6] | Asogu, J. O. (1998). An Econometric Analysis of the Relative Potency of Monetary and Fiscal Policy in Nigeria, CBN Economic and Financial Review, 36(2), 30-63. |
| [7] | Batten, D. S. & Hafer, R. W. (1983). The Relative Impact of Monetary and Fiscal Actions on Economic Activity: A Cross Country Comparison. Federal Reserve Bank of St. Louis Review (January), 5-12. |
| [8] | Blanchard, O. & Perotti, R. (1996). An Empirical Characterization of the Dynamic Effects of Changes in Government Spending on Output. NBER Working Paper 7296. |
| [9] | Bogunjoko, J. O. (1997). Monetary Dimension of the Nigerian Economic Crisis: Emprical Evidences from a Conintegration Paradigm. Nigerian Journal of Economic and Social Studies, 39(2), 145-167. |
| [10] | Carlson, K. M. (1978). Does the St Louis Equation now Believe in Fiscal Policy? Federal Reserve Bank St Louis Review, 13-19. |
| [11] | Chigbu, E. E. & Njoku, M. (2013). The Impact of Monetary and Fiscal Policies on Nigerian Economic Growth: 1990-2010. European Journal of Business and Management, 5(2). |
| [12] | Chukuigwe, E. C. & Abili, I. D. (2008). An Econometric Analysis of the Impact of Monetary and Fiscal Policies on Non-Oil Exports in Nigeria: 1974-2003. African Economic and Business Review, 6(2), 59-73. |
| [13] | Ezigbo, C. (2012). Justification and Implication of Macroeconomic Management for Sustainable Development. Journal of Economics and Sustainable Development, 3(11): 72-82. |
| [14] | Falade, O. E. & Folorunso, B. A. (2015). Fiscal and Monetary Policy Instruments and Economic Growth Sustainability in Nigeria. American Journal of Economics, 5(6): 587-594 DOI: 10.5923/j.economics.20150506.04 |
| [15] | Fatas, A. & Mihov, I. (2003). The Case for Restricting Fiscal Policy Discretion. Oxford Review of Economic Policy, 19(1), 112-131. |
| [16] | Friedman, B. M. (1977). Even the St. Louis now Believes in Fiscal Policy. J. Money Credit Bank, 9: 365-369. |
| [17] | Havi, E. D. K. & Enu, P. (2014). The Effect of Fiscal Policy and Monetary Policy on Ghana’s Economic Growth: Which Policy is More Potent? International Journal of Empirical Finance, (3)2, 61-75. |
| [18] | Iyeli, I. I., Uda, E. B. & Akpan E. (2012). The Relative Effectiveness of Monetary and Fiscal Policies in Economic Stabilization in a Developing Economy: An Empirical Evidence from Nigeria. African Journal Online, 3(1). |
| [19] | Jawaid, S. T., Arif, I. & Naeemullah, S. M. (2010). Comparative Analysis of Monetary and Fiscal Policy: A Case Study of Pakistan. NICE Research Journal, 3, 58-67. |
| [20] | Kareem, R. O., Afolabi, A. J., Raheemand, K. A. & Bashir, N. O. (2013). Analysis of Fiscal and Monetary Policies on Economic Growth: Evidence from Nigerian Democracy. Current Research Journal of Economic Theory, 5(1): 11-19. |
| [21] | Keran, M. W. (1970). Monetary and Fiscal Influence on Economic Activity, Federal Reserve Bank of St. Louis Review, (52), 5-24. |
| [22] | Kvrgić, G., Čolić, Z., & Vujović, T. (2011). Značaj koordinacije meramonetarne ifiskalne politik. Bankarstvo, 40(3-4), 32-61. |
| [23] | MacKinnon J. G. (1990). Critical Values for Cointegration Tests, Queen Economics Department Working Paper No. 1227. |
| [24] | Mountford and Uhlig (2008). What are the Effects of Fiscal Policy Schocks? The National Bureau of Economic Research. Working Paper No. 14551. |
| [25] | Munongo, S. (2012). Effectiveness of Fiscal Policy in Economic Growth: The Case of Zimbabwe. International Journal of Economics Research, 3(6), 93-99. |
| [26] | Ogar, A., Nkamare, S. E. & Emori, E. G. (2014). Fiscal and Monetary Policy and its Effect on the Growth of Nigeria Economy. European Journal of Business and Management. 6(29). |
| [27] | Olaloye, A. O. & Ikhide S. I. (1995). Economic Sustainability and the Role of Fiscal and Monetary Policies in A Depressed Economy: The Case Study of Nigeria”, Sustainable Development 3, 89–100. |
| [28] | Rakić, B. & Rađenović, T. (2013). The Effectiveness of Monetary and Fiscal Policy in Serbia. Industrija, 41(2). DOI: 10.5937/industrija41-4011. |
| [29] | Teigen, R. L. (1973). Monetary and fiscal influences on economic activity: Evidence from Denmark, Finland, and Norway. Issue 32 of Institute for International Economic Studies, University of Stockholm. |
| [30] | Ubogu, R. E. (1985). Potency of Monetary and Fiscal Policy Instruments on Economic Activities of African Countries; Finafrica: Savings and Development, 9(4), 440-457. |
APA Style
Adewale Emmanuel Adegoriola. (2018). An Empirical Analysis of Effectiveness of Monetary and Fiscal Policy Instruments in Stabilizing Economy: Evidence from Nigeria. Social Sciences, 7(3), 133-140. https://doi.org/10.11648/j.ss.20180703.14
ACS Style
Adewale Emmanuel Adegoriola. An Empirical Analysis of Effectiveness of Monetary and Fiscal Policy Instruments in Stabilizing Economy: Evidence from Nigeria. Soc. Sci. 2018, 7(3), 133-140. doi: 10.11648/j.ss.20180703.14
AMA Style
Adewale Emmanuel Adegoriola. An Empirical Analysis of Effectiveness of Monetary and Fiscal Policy Instruments in Stabilizing Economy: Evidence from Nigeria. Soc Sci. 2018;7(3):133-140. doi: 10.11648/j.ss.20180703.14
Share This Article
Twitter
Linked In
Facebook
Copy
Download@article{10.11648/j.ss.20180703.14,
author = {Adewale Emmanuel Adegoriola},
title = {An Empirical Analysis of Effectiveness of Monetary and Fiscal Policy Instruments in Stabilizing Economy: Evidence from Nigeria},
journal = {Social Sciences},
volume = {7},
number = {3},
pages = {133-140},
doi = {10.11648/j.ss.20180703.14},
url = {https://doi.org/10.11648/j.ss.20180703.14},
eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ss.20180703.14},
abstract = {This paper empirical study the effectiveness of monetary and fiscal policy instruments in stabilizing Nigerian economy from 1981 - 2015. The data were sourced from Central Bank of Nigeria, National Bureau of Statistics and World Development Index (WDI). The data was tested for stationarity using Augmented Dickey Fuller (ADF test while the co-integration was conducted using Johansen’s methodology. Error Correction Model (ECM) was employed for the empirical analysis. The results show that, there is long run equilibrium relationship between monetary and fiscal policy instruments and economic growth in Nigeria. ECM has the expected negative sign and is between the accepted region of less than unity. This was confirmed by the positive relationship between money supply, government expenditure and revenue while interest rate and budget deficit have negative relationship with economic growth. Therefore, it recommended that there should be effective use of money supply and government expenditure as key instruments of monetary and fiscal policy in Nigeria in order to improve the economy. Also, government annual budget implementation and execution of projects should be monitored to ensure that the objectives of the budget is achieved, which include price stability, economic growth, increase employment, income distribution among others. This can be done by eliminating corruption, leakages of resources and inappropriate use of resources. Interest rate should the reduced to one-digit to encourage borrowing, increase investment and output. These will bring the economy to a steady state.},
year = {2018}
}
TY - JOUR T1 - An Empirical Analysis of Effectiveness of Monetary and Fiscal Policy Instruments in Stabilizing Economy: Evidence from Nigeria AU - Adewale Emmanuel Adegoriola Y1 - 2018/05/18 PY - 2018 N1 - https://doi.org/10.11648/j.ss.20180703.14 DO - 10.11648/j.ss.20180703.14 T2 - Social Sciences JF - Social Sciences JO - Social Sciences SP - 133 EP - 140 PB - Science Publishing Group SN - 2326-988X UR - https://doi.org/10.11648/j.ss.20180703.14 AB - This paper empirical study the effectiveness of monetary and fiscal policy instruments in stabilizing Nigerian economy from 1981 - 2015. The data were sourced from Central Bank of Nigeria, National Bureau of Statistics and World Development Index (WDI). The data was tested for stationarity using Augmented Dickey Fuller (ADF test while the co-integration was conducted using Johansen’s methodology. Error Correction Model (ECM) was employed for the empirical analysis. The results show that, there is long run equilibrium relationship between monetary and fiscal policy instruments and economic growth in Nigeria. ECM has the expected negative sign and is between the accepted region of less than unity. This was confirmed by the positive relationship between money supply, government expenditure and revenue while interest rate and budget deficit have negative relationship with economic growth. Therefore, it recommended that there should be effective use of money supply and government expenditure as key instruments of monetary and fiscal policy in Nigeria in order to improve the economy. Also, government annual budget implementation and execution of projects should be monitored to ensure that the objectives of the budget is achieved, which include price stability, economic growth, increase employment, income distribution among others. This can be done by eliminating corruption, leakages of resources and inappropriate use of resources. Interest rate should the reduced to one-digit to encourage borrowing, increase investment and output. These will bring the economy to a steady state. VL - 7 IS - 3 ER -
Email: