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An Empirical Analysis of Effectiveness of Monetary and Fiscal Policy Instruments in Stabilizing Economy: Evidence from Nigeria

Received: 30 October 2017     Accepted: 24 November 2017     Published: 18 May 2018
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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.

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

Keywords

Monetary Policy, Fiscal Policy, Economic Growth, Error Correction Model

References
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[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.
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[16] Friedman, B. M. (1977). Even the St. Louis now Believes in Fiscal Policy. J. Money Credit Bank, 9: 365-369.
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[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.
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  • 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

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    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

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    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

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  • @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}
    }
    

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    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
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Author Information
  • Department of Economics, University of Abuja, Abuja, Nigeria

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