Determinants Of Inflation Exchange Rate And Output In Nigeria

This paper presents a macroeconomic model of the Nigerian economy. The long-run relationships pertaining to the markets for money, foreign exchange, and (non-oil) output are estimated. Subsequently, dynamic equations are estimated for the price level, the real exchange rate, and output. The results are instrumental in explaining the dramatic developments on the foreign exchange market during 1983-86 and 1992-94, the secular depreciation of the real exchange rate since 1985, and the rise and fall of inflation during 1991-97. The methodology could usefully be applied to other economies whose exports are insensitive to exchange rate movements (e.g., other oil-based economies).

This paper provides a selective review of the literature on the determinants of inflation in Nigeria, analyzes the dominant factors influencing inflation, presents the empirical results of a reduced-form elasticities model, and discusses the policy implications of the empirical results. The results of this analysis confirm the basic findings of earlier studies, namely that monetary expansion, driven mainly by expansionary fiscal policies, explains to a large degree the inflationary process in Nigeria. Other important factors are the devaluation of the naira and agroclimatic conditions. With respect to the depreciation of the naira, it was found that concurrent fiscal and monetary policies had a major influence on its impact on inflation. Given the considerable role of food commodities in the CPI, agroclimatic conditions (rainfall) were found to play a significant role in overall movements in prices and should be fully taken into consideration in any analysis of the inflationary process in Nigeria.

Master's Thesis from the year 2017 in the subject Business economics - Banking, Stock Exchanges, Insurance, Accounting, grade: 4.24, Wilberforce Island (School of Post Graduate Studies), course: Banking and Finance, language: English, abstract: The aim of this study was to investigate the effect of monetary policy variables that were consistently adopted by the Central Bank of Nigeria (CBN), on the inflation rate in Nigeria for the period 2009-2014. Two key issues where addressed; one, whether there was a significant relationship between the policy variables adopted and inflation. Two, whether the combined impact of all these variables adopted, was significant on the inflation rate. Data was sourced from the CBN’s statistical bulletin 2014, from the website of the CBN and the National Bureau of Statistics (NBS). The Ordinary Least Squares (OLS) method was adopted because of its best linear unbiased estimation (BLUE) property. The Augmented Dickey-Fuller test for stationarity, showed that the variables were all stationary at order one (1). Cointegration test also revealed that a long run relationship exists among the variables. The results show that apart from the MPR, all other policy variables were significant at the 5% level of significance (the monetary policy horizon) and this addressed the first key issue highlighted. For the second key issue, the estimation model displayed that all the explanatory variables adopted by the CBN (as used in this research) accounted for 61% of the variation in the inflation rate as regards its rise or drop. Hence, the combined effect of all the variables adopted by the CBN did reduce the inflation rate, as the monetary policy shocks did get traction on the economy in arriving at the policy trajectory of an inflation band of 6-9%. The CBN should constantly examine its policy environment to determine the instrument mix optimization that best serves its prime purpose of macroeconomic stability, especially when its inflation target is achieved.

We analyze coordination of monetary and exchange rate policy in a two-sector model of a small open economy featuring imperfect substitution between domestic and foreign financial assets. Our central finding is that management of the exchange rate greatly enhances the efficacy of inflation targeting. In a flexible exchange rate system, inflation targeting incurs a high risk of indeterminacy where macroeconomic fluctuations can be driven by self-fulfilling expectations. Moreover, small inflation shocks may escalate into much larger increases in inflation ex post. Both problems disappear when the central bank leans heavily against the wind in a managed float.

This is the first comprehensive study in the context of EMDEs that covers, in one consistent framework, the evolution and global and domestic drivers of inflation, the role of expectations, exchange rate pass-through and policy implications. In addition, the report analyzes inflation and monetary policy related challenges in LICs. The report documents three major findings: In First, EMDE disinflation over the past four decades was to a significant degree a result of favorable external developments, pointing to the risk of rising EMDE inflation if global inflation were to increase. In particular, the decline in EMDE inflation has been supported by broad-based global disinflation amid rapid international trade and financial integration and the disruption caused by the global financial crisis. While domestic factors continue to be the main drivers of short-term movements in EMDE inflation, the role of global factors has risen by one-half between the 1970s and the 2000s. On average, global shocks, especially oil price swings and global demand shocks have accounted for more than one-quarter of domestic inflation variatio--and more in countries with stronger global linkages and greater reliance on commodity imports. In LICs, global food and energy price shocks accounted for another 12 percent of core inflation variatio--half more than in advanced economies and one-fifth more than in non-LIC EMDEs. Second, inflation expectations continue to be less well-anchored in EMDEs than in advanced economies, although a move to inflation targeting and better fiscal frameworks has helped strengthen monetary policy credibility. Lower monetary policy credibility and exchange rate flexibility have also been associated with higher pass-through of exchange rate shocks into domestic inflation in the event of global shocks, which have accounted for half of EMDE exchange rate variation. Third, in part because of poorly anchored inflation expectations, the transmission of global commodity price shocks to domestic LIC inflation (combined with unintended consequences of other government policies) can have material implications for poverty: the global food price spikes in 2010-11 tipped roughly 8 million people into poverty.

Controlling inflation is among the most important objectives of economic policy. By maintaining price stability, policy makers are able to reduce uncertainty, improve price-monitoring mechanisms, and facilitate more efficient planning and allocation of resources, thereby raising productivity. This volume focuses on understanding the causes of the Great Inflation of the 1970s and ’80s, which saw rising inflation in many nations, and which propelled interest rates across the developing world into the double digits. In the decades since, the immediate cause of the period’s rise in inflation has been the subject of considerable debate. Among the areas of contention are the role of monetary policy in driving inflation and the implications this had both for policy design and for evaluating the performance of those who set the policy. Here, contributors map monetary policy from the 1960s to the present, shedding light on the ways in which the lessons of the Great Inflation were absorbed and applied to today’s global and increasingly complex economic environment.

This paper develops an endogenous growth model of the influence of public investment, public transfers, and distortionary taxation on the rate of economic growth. The growth–enhancing effects of investment in public capital and transfer payments are modeled, as is the growth–inhibiting influence of the levying of distortionary taxes that are used to fund such expenditure. The theoretical implications of the model are then tested with data from 23 developed countries between 1971 and 1988, and time series cross sectional results are obtained that support the proposed influence of the public finance variables on economic growth.