IIARD International Institute of Academic Research and Development

INTERNATIONAL JOURNAL OF ECONOMICS AND FINANCIAL MANAGEMENT (IJEFM )

E-ISSN 2545-5966
P-ISSN 2695-1932
VOL. 9 NO. 9 2024
DOI: 10.56201/ijefm.v9.no9.2024.pg280.303

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Inflation, Exchange Rate and Output Growth in Nigeria: An Examination of the Economic Consequences of Transitory Shocks

Andrew EO Erhijakpor, PhD

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Abstract

This study attempts to consider the implications of permanent shocks of inflation, exchange rate on economic output growth, in accordance with their relationships to other macroeconomic and financial variables in Nigeria. It follows the monetarist assumption that the macroeconomic variables represented, have no contemporaneous effects on policy variables due to information constraints. This assumption upholds the tenets of the financial programming constructs, which assumes the deviations from targets with respect to inflation. This is particularly true in an economy, such as Nigeria, where fiscal dominance has been persistent for a long period. These insights indicates that the Central Bank of Nigeria looks at the behaviors of these policy variables when conducting monetary policy adjustments. Thus, the structural VAR econometric technique is used to examine the shock impact of these variables. The lag length were obtained and the results of the impulse responses were observed and interpreted accordingly. The results indicates that lag periods exist between shocks on inflation, exchange and output growth. Subsequently, the responses of the monetary policy variables to adjust the consequential unanticipated changes are weak. The lag length from the result is about three quarters which is rather too long; thus, exhibiting the risk of effective delivery in monetary policy implementation. Also, the study concluded that the persistent inflationary pressures currently prevailing in the Nigerian economy do not seem to yield to the injected policy stimuli from monetary activities and the known responses are largely delayed by the present structure of the system.

keywords:

Exchange Rate, Inflation Rate, Output Growth, Money Supply.

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