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Vol. 3 No. 5 (2020): AJEBM

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The Effectiveness of Monetary and Fiscal Policies in Stimulating Real Sector Output in Nigeri: The Need for Monetary-Fiscal Coordination

https://doi.org/10.31150/ajebm.v3i5.206
Ubong Effiong
University of Uyo, Uyo
Mr Joel Okon
Central Bank of Nigeria, Abuja

Corresponding Author(s) : Ubong Effiong

ubongeffiong78@yahoo.com

American Journal of Economics and Business Management, Vol. 3 No. 5 (2020): AJEBM

Abstract

This paper sought to examine the influence of monetary and fiscal policies on real sector output in Nigeria for the period 1981 to 2019. Data for the study were obtained from the Central Bank of Nigeria statistical bulletin and the World Development Indictors. The study employed the Augmented Dicky-Fuller and Philip-Peron test for unit root, Johansen cointegration test, Bounds test for levels relationship, error correction model, and Granger causality test. Both the Johansen cointegration test and the Bounds test for levels relationship revealed evidence of long run equilibrium relationship, necessitating the estimation of the error correction model. Based on the error correction model, monetary policy variables (broad money supply and prime lending rate) and fiscal policy variables (government expenditure, oil revenue, and non-oil revenue) exerted the desired significant effect on real sector output (gross domestic product) in the short run. The error correction term (0.393) indicates that 39.3% of the short run disequilibrium in real sector output is corrected annually. However, both government expenditure and broad money supply exerted a negative effect on real sector output in the long run; while prime lending rate and both oil and non-oil revenue generated a positive effect. The Granger causality test revealed no causality between government expenditure and real sector output, but a two-way causality flows between broad money supply and real sector output. The paper recommended a sound monetary-fiscal coordination so as to generate the desired effect on the real sector of the economy.

Keywords

government expenditure fiscal policy monetary-fiscal coordination monetary policy macroeconomic management real sector output
Effiong, U., & Okon, J. (2020). The Effectiveness of Monetary and Fiscal Policies in Stimulating Real Sector Output in Nigeri: The Need for Monetary-Fiscal Coordination. American Journal of Economics and Business Management, 3(5), 94–127. https://doi.org/10.31150/ajebm.v3i5.206
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