External Finance Premium and Macroeconomic Outcomes in Nigeria

36 Pages Posted: 29 Mar 2016

See all articles by Thierry Urgue Kame Babilla

Thierry Urgue Kame Babilla

Center for Economic Policy; Euro Area Business Cycle Network (EABCN); Global Labor Organization

Philip O. Alege

Covenant University

Date Written: March 23, 2016

Abstract

We develop a small open economy Dynamic Stochastic General Equilibrium model with financial frictions to emphasize the effects of credit market imperfections on macroeconomic outcomes in Nigeria. Financial frictions appear because of the existence of an agency problem that exposes entrepreneurs to high external finance premium. Findings demonstrate that financial frictions matter in the sluggishness of economy activity in Nigeria. Financial constraint lowered GDP level only by 10 percent in presence of domestic shocks, contrast to 30 percent in presence of foreign shocks. Furthermore, monetary policy can create pace to ease access to finance with end of fostering economy activity.

Keywords: External Finance Premium, Macroeconomic Outcomes, DSGE Model, Nigeria

JEL Classification: C61, D58, E44, F41

Suggested Citation

Kame Babilla, Thierry Urgue and Alege, Philip Olasupo, External Finance Premium and Macroeconomic Outcomes in Nigeria (March 23, 2016). Available at SSRN: https://ssrn.com/abstract=2755086 or http://dx.doi.org/10.2139/ssrn.2755086

Thierry Urgue Kame Babilla (Contact Author)

Center for Economic Policy ( email )

London, Center
United Kingdom

Euro Area Business Cycle Network (EABCN) ( email )

Great Sutton Street
London, 33
United Kingdom

Global Labor Organization ( email )

Collogne
Germany

Philip Olasupo Alege

Covenant University ( email )

P.M.B. 1023
Km 10 Idiroko road
Ota, Ogun State 234
Nigeria

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