The Impact of Monetary and Fiscal Policies in Management of Cyclical Fluctuations in Nigeria: 1990-2018

Abstract

The research investigated on the impact of monetary and fiscal policies in management of cyclical fluctuation in Nigerian economy between 1990Q1 and 2018Q2. Quarterly data were sourced from the CBN online data bank. Cyclical fluctuation was measured by real growth rate using real gross domestic product as proxy and two instruments each from monetary policy (broad money supply and monetary policy rate) and fiscal policy (capital expenditure and recurrent expenditure). While real growth rate was made the dependent variable, monetary and fiscal policies were the explanatory variables employing ARDL technique to analyse the data. We found out that real growth rate had instantaneous negative response to the monetary policy rate and positive response to recurrent expenditure. In the short run, both monetary policy rate and recurrent expenditure were counter-cyclical and significant while in the long run, only monetary policy rate was counter-cyclical and significant. The speed of adjustment was very high. The study recommends that the best and most efficient single instrument to manage cyclical fluctuation in Nigerian in the short run is recurrent expenditure. In the long run, monetary policy rate is the best and most effective. However, both policies will manage the economy at its best.

Keywords: Cyclical Fluctuation, Monetary policy, fiscal policy, ARDL