The effectiveness of monetary policy ln Nigeria: an empirical investigation

Abstract

The paper has attempted to assess the effectiveness of monetary policy in Nigeria between 1986 and 2012, against concerns over the inelasticity of real sector variables to monetary policy shocks. It applied a vector autoregressive (VAR) methodology to answer two questions: what is the role of monetary policy on the growth of output, inflation and the nominal exchange rate in Nigeria and is there a price puzzle attributable to monetary policy in Nigeria? Subject to the restrictions imposed by the data sample and the six variables specified, the study found that monetary policy was effective in the period of study; it explained movement in output, inflation and the exchange rate. Specifically, it found no output or price puzzled associated with monetary policy in Nigeria but that an exchange rate puzzle is established, suggesting that domestic monetary policy might only be partly responsible for variation in the exchange rate in the country.