Monetary and fiscal policy coordination in Nigeria

Hamisu Ali; Oluwaseun Adeniran Sunday; Alfred Gideon Gaya

doi:10.65453/ijar.v10i1.1279

Authors

Hamisu Ali
Oluwaseun Adeniran Sunday
Alfred Gideon Gaya

DOI:

https://doi.org/10.65453/ijar.v10i1.1279

Keywords:

ARDL, Coordination, Fiscal Policy, Monetary

Abstract

Macroeconomic policy aims to achieve sustainable, inflation-free growth. These measures include monetary and fiscal policies. The Central Bank of Nigeria (CBN) employs monetary instruments. The variables are economic growth (EG) as measured by gross domestic product, money supply (MS), real interest rate (RIR), monetary policy rate (MPR), government expenditure (GS), and financial deepening (FD). This research uses annual time series data from 1985 to 2023. Using the auto-regressive distributed lag (ARDL) model, a long-run link between independent and dependent variables was discovered. The ARDL bounds testing results reveal that the money supply (MS) and real interest rate (RIR) have a beneficial effect on economic growth. Monetary policy rates (MPR) and financial deepening (FD) have a detrimental impact on Nigeria's economic growth. The study was based on the Mundell-Fleming Model (1960). Based on our findings, we recommend that the government increase the money supply gradually to stimulate economic activity without causing inflation, keep real interest rates low to encourage borrowing for productive investments while keeping inflation in mind, and implement policies to improve financial inclusion and deepen the financial sector, including expanding access to banking services and credit facilities for SMEs.

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