Effects of Monetary Policy Shocks on Output and Prices in Nigeria

Abstract

This study examined the effects of monetary policy shocks on output and prices using the state of the economy in Nigeria. Quarterly data from 1986: Q1 to 2016:Q4 on output (GDP), interest rate, money supply, inflation rate, investment and real effective exchange rate were sourced from Central Bank of Nigeria (CBN) Statistical Bulletin, 2016 and World Development Indicator (WDI), 2018. Data collected were analyzed using econometric techniques of Autoregressive Distributive Lag (ARDL). The investigation analysis on the effectiveness of monetary policy shocks showed that in the long run, monetary policy shocks have positive effect on output in boom and negative effect during recession periods but the significant effect in boom is more than the effect in recession period (1.06 and -0.05) while monetary policy shocks in Nigeria have more effects on prices during recession than in boom period (-1.45 and 0.66). The study concluded that monetary policy shock is more effective on output in boom period than recession and have more effects on prices during recession than boom period. Therefore, this study provides fresh empirical evidence on the effectiveness of monetary policy shocks on the state of the economy in Nigeria.

Keywords: Asymmetric, shocks, policy, boom, recession, output, prices