Monetary Policy and Output-Inflation Volatility Interaction in Nigeria: Evidence from Bivariate GARCH-M Model

IISTE Journal of Economics and Sustainable Development, Vol.2, No.6, 2011 pp 46-64

19 Pages Posted: 26 Apr 2012

See all articles by Onyukwu Onyukwu

Onyukwu Onyukwu

University of Nigeria - Department of Economics

Emmanuel O. Nwosu

University of Nigeria - Department of Economics

Ito Diejomaoh

African Institute for Applied Economics

Date Written: April, 25 2012

Abstract

This article reports on a recent study that applies bivariate GARCH methodology to investigate the existence of a tradeoff between output growth and inflation variability in Nigeria and to ascertain the impact of monetary policy regime changes (from direct control regime to indirect or market based regime) on the nature of the volatility tradeoffs. Investigations reveal the existence of a short run tradeoff relationship between output growth and inflation within and across both regimes. However, no strong evidence of long run volatility relationship could be established. Our results further reveal that regime changes affected the magnitude of policy effects on output and inflation. Monetary policy had a stronger effect on output growth than on price stability during the period of direct control while it has a much larger impact on inflation during the current period of market-based regime. Also volatility of output and inflation became more persistent during the period of indirect control.

Keywords: Monetary Policy, Output-Inflation Volatility, Bivariate GARCH-M Model

JEL Classification: E52, C01

Suggested Citation

Onyukwu, Onyukwu and Nwosu, Emmanuel O. and Diejomaoh, Ito, Monetary Policy and Output-Inflation Volatility Interaction in Nigeria: Evidence from Bivariate GARCH-M Model (April, 25 2012). IISTE Journal of Economics and Sustainable Development, Vol.2, No.6, 2011 pp 46-64. Available at SSRN: https://ssrn.com/abstract=2046185

Onyukwu Onyukwu

University of Nigeria - Department of Economics ( email )

Department of Economics,
University of Nigeria Nsukka
Nsukka, Enugu State 4100002
Nigeria

Emmanuel O. Nwosu

University of Nigeria - Department of Economics ( email )

Department of Economics,
University of Nigeria Nsukka
Enugu, 4100002
Nigeria

HOME PAGE: http://www.unn.edu.ng

Ito Diejomaoh (Contact Author)

African Institute for Applied Economics ( email )

54 Nza Street, Independence Layout
P,O, Box 2147
Enugu, Enugu State 400221
Nigeria

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