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Is Nigeria Ready for Inflation Targeting?

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  • Aliyu, Shehu Usman Rano
  • Englama, Abwaku

Abstract

This paper evaluates whether Nigeria is ready to adopt inflation targeting (IT), a monetary policy framework that several emerging markets have adopted over the last one decade. The paper reviewed literature on selected conditions for successful implementation of IT and then focused on whether one specific precondition of an empirically stable monetary transmission mechanism is tenable. Vector autoregressive (VAR) model was applied using select monetary policy and other macroeconomic variables to explore the various channels using the Granger causality tests, impulse responses, and variance decompositions. Results showed that inflation in Nigeria is impassive to monetary transmission variables in the model. Specifically, weak link between prices and credit and interest rate channels were established. However, evidence of strong inverse link between exchange rate and prices was found in the model. This suggests exchange rate pass-through on the level of prices in the economy. The paper, therefore, recommends the pursuance of IT lite in Nigeria.

Suggested Citation

  • Aliyu, Shehu Usman Rano & Englama, Abwaku, 2009. "Is Nigeria Ready for Inflation Targeting?," MPRA Paper 14870, University Library of Munich, Germany, revised 26 Apr 2009.
    • Handle: RePEc:pra:mprapa:14870
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    References listed on IDEAS

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    29. International Monetary Fund, 2007. "Modalities of Moving to Inflation Targeting in Armenia and Georgia," IMF Working Papers 2007/133, International Monetary Fund.
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    1. repec:ilo:ilowps:467212 is not listed on IDEAS
    2. Emerson Abraham JACKSON & Mohamed JABBİE & Edmund TAMUKE & Augustine NGOMBU, 2020. "Adoption of Inflation Targeting in Sierra Leone: An Empirical Discourse," Journal of Economic Policy Researches, Istanbul University, Faculty of Economics, vol. 7(2), pages 21-50, July.
    3. Agu, Ugochukwu. & Evoh, Chijioke J., 2011. "Macroeconomic policy for full and productive and decent employment for all : the case of Nigeria," ILO Working Papers 994672123402676, International Labour Organization.
    4. Mehmet BALCILAR & Ojonugwa USMAN & Muhammad Sani MUSA, 2020. "The Long-Run and Short-Run Exchange Rate Pass-Through during the Period of Economic Reforms in Nigeria: Is it Complete or Incomplete?," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 151-172, March.
    5. Ibrahim Abdulhamid Danlami & Mohamad Helmi Bin Hidthiir & Sallahuddin Hassan, 2019. "Dynamic Analysis of the Effect of Fiscal Deficit on Inflation in Nigeria," Academic Journal of Economic Studies, Faculty of Finance, Banking and Accountancy Bucharest,"Dimitrie Cantemir" Christian University Bucharest, vol. 5(2), pages 159-165, June.
    6. David Mautin Oke & Koye Gerry Bokana & Adebowale Soluade, 2017. "Re-examining Exchange Rate Regimes and Inflation Nexus: An ARDL Analysis for Nigerian Case," Acta Universitatis Danubius. OEconomica, Danubius University of Galati, issue 13(6), pages 253-266, DECEMBER.
    7. Kemisola Christianah Osundina & Sheriffdeen A. Tella & Bolaji A. Adesoye, 2018. "Interest Rate Channel and Real Economy in Nigeria: A Bayesian Vector Autoregression Approach," International Journal of Economics and Financial Issues, Econjournals, vol. 8(4), pages 313-321.
    8. Ibrahim Abdulhamid Danlami & Mohamad Helmi Bin Hidthiir & Sallahuddin Hassan, 2018. "Inflation in Sierra Leone: An Empirical Analysis of the Impact of Interest Rate on Price Level Changes," Academic Journal of Economic Studies, Faculty of Finance, Banking and Accountancy Bucharest,"Dimitrie Cantemir" Christian University Bucharest, vol. 4(4), pages 42-49, December.
    9. Syed Imran Ali Meerza, 2020. "Do Preconditions of Inflation Targeting Framework Matter?," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 12(5), pages 1-51, May.

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    More about this item

    Keywords

    Inflation targeting; vector autoregressive model; Granger causality test; monetary transmission mechanism; exchange rate pass-through;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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