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Monetary Policy and Macroeconomic Instability in Nigeria: A Rational Expectation Approach


Author Info

  • Feridun, M.,
  • Folawewo, A. O.
  • Osinubi, T.S .


Generally, both fiscal and monetary policies seek at achieving relative macroeconomic stability. Based on countries’ experience on the role of monetary policy in controlling economics instability, this study examines the efficacy of monetary policy in controlling inflation rate and exchange rate instability. The analysis performed is based on a rational expectation framework that incorporates the fiscal role of exchange rate. Using quarterly data spanning over 1980: 1 to 2000: 4, and applying time series test on the data used, the paper shows that the effort of monetary policy at influencing the finance of government fiscal deficit through the determination of the inflation-tax rate affects both the rate of inflation and the real exchange rate, thereby causing volatility in their rates. The paper reveals that inflation affects volatility of its own rate as well as in the rate of real exchange. The policy import of the paper is that monetary policy should be set in such a way that the objective it is to achieve is well defined.

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Bibliographic Info

Article provided by Euro-American Association of Economic Development in its journal Applied Econometrics and International Development.

Volume (Year): 5 (2005)
Issue (Month): 2 ()

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Handle: RePEc:eaa:aeinde:v:5:y:2005:i:2_4

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Cited by:
  1. Goodness C. Aye & Rangan Gupta, 2011. "The Effects of Monetary Policy On Real Farm Prices in South Africa," Working Papers 201119, University of Pretoria, Department of Economics.
  2. Michael Baghebo & Ebibai Tombra Stephen, 2014. "Monetary Policy and Economic Growth in Nigeria (1980-2011)," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 4(1), pages 20-32, January.
  3. Ismail O. FASANYA & Adegbemi B.O ONAKOYA & Mariam A. AGBOLUAJE, 2013. "Does Monetary Policy Influence Economic Growth in Nigeria?," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 3(5), pages 635-646, May.


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