Advanced Search
MyIDEAS: Login to save this article or follow this journal

Price Volatility, Expectations and Monetary Policy in Nigeria

Contents:

Author Info

  • Ajimuda Olumide

    (Department of Economics and Statistics,University of Benin, Nigeria)

Registered author(s):

    Abstract

    The study has as its objectives, to determine the influence of price volatility and price expectation in the rate of inflation as a measure of the price level. In addition, the study sought to evaluate ipso facto the extent to which monetary policy has influenced inflation by reducing price volatility and expectation towards zero. The study applied the maximum likelihood estimator in addition to the GARCH (p, q model) to estimate the steady state model of inflation. As a measure of volatility, the conditional standard deviation for inflation was obtained from the GARCH model. Inflation expectation was solved using the Gauss-Siedel algorithm for forward-looking expectations with actual inflation series as start values. The VAR model was estimated to determine the impulse response functions and the variance decomposition using Cholesky decomposition so as to determine the response to monetary policy of inflation, its volatility and expectations. The study found that inflation expectation and price volatility not only influence the contemporaneous inflation, it also results in persistence in interest rate differential and monetary growth, thus compromising the objective of monetary policy. The study recommends that explicit anchoring of expectations and volatility ensure that monetary policy is forward-looking and that a symmetric inflation target strengthens intertemporal sustainability in monetary policy management. In addition, the behaviour of inflation ex post and the speed of convergence of inflation expectations should provide the basis for determining the most appropriate pulse of nominal interest rate in the economy which will keep inflation trajectory consistent with the growth of the economy.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.utgjiu.ro/revista/ec/pdf/2009-01/8_AJIMUDA_OLUMIDE.pdf
    Download Restriction: no

    Bibliographic Info

    Article provided by Constantin Brancusi University, Faculty of Economics in its journal Constatin Brancusi Univeristy of Targu Jiu Annals - Economy Series.

    Volume (Year): 1 (2009)
    Issue (Month): (May)
    Pages: 109-140

    as in new window
    Handle: RePEc:cbu:jrnlec:y:2009:v:1:p:109-140

    Contact details of provider:
    Postal: Str. Victoriei 24, Targu-Jiu, Gorj
    Phone: 004 0253 211062
    Email:
    Web page: http://www.utgjiu.ro/fse_new/
    More information through EDIRC

    Related research

    Keywords: Price Volatility; Forward-looking Expectations; Persistence; Speed of Adjustment; Steady-State; Gauss-Siedel; GARCH; Impulse-Response functions;

    Find related papers by JEL classification:

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Chadha, Jagjit S & Sarno, Lucio, 2002. " Short- and Long-Run Price Level Uncertainty under Different Monetary Policy Regimes: An International Comparison," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 64(3), pages 187-216, July.
    2. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
    3. n/a, 1999. "An Artificial Neural Network System of Leading Indicators," NIESR Discussion Papers 198, National Institute of Economic and Social Research.
    4. Darby, Julia & Hughes Hallett, Andrew & Ireland, Jonathan & Piscitelli, Laura, 1998. "The Impact of Exchange Rate Uncertainty on the Level of Investment," CEPR Discussion Papers 1896, C.E.P.R. Discussion Papers.
    5. Kenen, Peter B & Rodrik, Dani, 1986. "Measuring and Analyzing the Effects of Short-term Volatility in Real Exchange Rates," The Review of Economics and Statistics, MIT Press, vol. 68(2), pages 311-15, May.
    6. Paul Conway & Aaron Drew & Ben Hunt & Alasdair Scott, 1998. "Exchange rate effects and inflation targeting in a small open economy: a stochastic analysis using FPS," Reserve Bank of New Zealand Discussion Paper Series G99/4, Reserve Bank of New Zealand.
    7. John P. Judd & Glenn D. Rudebusch, 1998. "Taylor's rule and the Fed, 1970-1997," Economic Review, Federal Reserve Bank of San Francisco, pages 3-16.
    8. Joseph P. Byrne & E. Philip Davis, 2005. "Investment and Uncertainty in the G7," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 141(1), pages 1-32, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:cbu:jrnlec:y:2009:v:1:p:109-140. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ecobici Nicolae).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.