Monetary Policy and Inflation Targeting in Nigeria: The Need for Monetary-Fiscal Coordination

摘要

This paper examined the effectiveness of a monetary-fiscal coordination in inflation targeting in Nigeria for the period 1985 to 2019. The study got its inspiration from the monetarist assertion that inflation is strictly a monetary phenomenon. Data were obtained from the Central Bank of Nigeria statistical bulletin and the World Bank database on World Development Indicators. The study employed the Augmented Dickey-Fuller unit root test, ARDL bounds test for cointegration, and the Error Correction Mechanism (ECM). The unit root test revealed that the variables were stationary at mixed order of level I(0) and first difference I(1). This mixed order made us to employ the ARDL Bounds test for cointegration and the result indicated that there is a long run relationship. The Error Correction Mechanism revealed that 55.4% of the short run disequilibrium is corrected annually. Meanwhile, the study revealed that both monetary policy channels and fiscal policy significantly influence inflation both in the long run and in the short run. The paper concludes by stating that there is a need for a sound monetary-fiscal coordination in the Nigerian economy if the fight against inflation is to be won hence, inflation should not only be viewed as a monetary phenomenon.