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http://ssrn.com/abstract=1237522
 
 

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Monetary Policy and Macroeconomic Instability in Nigeria: A Rational Expectation Approach


Mete Feridun


Loughborough University - Department of Economics

Abiodun O. Folawewo


affiliation not provided to SSRN

Tokunbo Simbowale Osinubi


affiliation not provided to SSRN

2005

Applied Econometrics and International Development, Vol. 5, No. 2, 2005

Abstract:     
Generally, both fiscal and monetary policies seek at achieving relative macroeconomic stability. Based on countries' experience on the role of monetary policy in controlling economics instability, this study examines the efficacy of monetary policy in controlling inflation rate and exchange rate instability. The analysis performed is based on a rational expectation framework that incorporates the fiscal role of exchange rate. Using quarterly data spanning over 1980: 1 to 2000: 4, and applying time series test on the data used, the paper shows that the effort of monetary policy at influencing the finance of government fiscal deficit through the determination of the inflation-tax rate affects both the rate of inflation and the real exchange rate, thereby causing volatility in their rates. The paper reveals that inflation affects volatility of its own rate as well as in the rate of real exchange. The policy import of the paper is that monetary policy should be set in such a way that the objective it is to achieve is well defined.

Number of Pages in PDF File: 22

Keywords: Monetary policy, Nigeria, Exchange rate

JEL Classification: C5, E52, F33

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Date posted: August 21, 2008  

Suggested Citation

Feridun, Mete and Folawewo, Abiodun O. and Osinubi, Tokunbo Simbowale, Monetary Policy and Macroeconomic Instability in Nigeria: A Rational Expectation Approach (2005). Applied Econometrics and International Development, Vol. 5, No. 2, 2005. Available at SSRN: http://ssrn.com/abstract=1237522

Contact Information

Mete Feridun (Contact Author)
Loughborough University - Department of Economics ( email )
York House
Loughborough LE11 3TU
Great Britain
Abiodun O. Folawewo
affiliation not provided to SSRN ( email )
No Address Available
Tokunbo Simbowale Osinubi
affiliation not provided to SSRN ( email )
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