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Remittances, financial development and the effectiveness of monetary policy transmission mechanism in Nigeria: a DSGE approach (1986–2018)

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  • Olumuyiwa Tolulope Apanisile

    (Obafemi Awolowo University)

Abstract

The study examines the effect of remittance inflows on the effectiveness of monetary policy transmission channels in Nigeria using the New-Keynesian DSGE model. The study employs quarterly data spanning from 1986:1 to 2018:4. Four different channels are considered namely interest rate, exchange rate, credit and expectation channels. Results show that remittance inflows hinder the effectiveness of monetary policy channels. This implies the bulk of remittance inflows into the country do not pass through the financial system. Rather, the inflow is through the informal channels thereby making it difficult for the monetary authority to control the amount of inflow. Furthermore, given the impact of remittance on output gap, it shows that remittance has low persistence in the economy despite the inflow. This implies the bulk of remittance inflow is spent on consumption and not investment. Considering the effect of remittance inflow on inflation, the inflow is not inflationary. The study concludes that to better sterilize the effect of remittance inflow in the country, monetary policy authority should encourage the inflow through the financial system.

Suggested Citation

  • Olumuyiwa Tolulope Apanisile, 2021. "Remittances, financial development and the effectiveness of monetary policy transmission mechanism in Nigeria: a DSGE approach (1986–2018)," Indian Economic Review, Springer, vol. 56(1), pages 91-112, June.
    • Handle: RePEc:spr:inecre:v:56:y:2021:i:1:d:10.1007_s41775-021-00110-z
    DOI: 10.1007/s41775-021-00110-z
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    Cited by:

    1. Tayyaba Rani & Feng Wang & Fawad Rauf & Qurat ul Ain & Hamid Ali, 2023. "Linking personal remittance and fossil fuels energy consumption to environmental degradation: evidence from all SAARC countries," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 25(8), pages 8447-8468, August.
    2. Imouokhome Peter Afen-Okhai, 2023. "Impact of Migration and Remittances on Economic Growth in Nigeria," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 7(8), pages 569-605, August.

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    More about this item

    Keywords

    Remittance; Financial development; Transmission mechanism; DSGE; Monetary policy;
    All these keywords.

    JEL classification:

    • F24 - International Economics - - International Factor Movements and International Business - - - Remittances
    • G2 - Financial Economics - - Financial Institutions and Services
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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