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Monetary Policy Transmission Mechanism in Nigeria: A Comparative Analysis

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  • Ngozi Frances Obafemi
  • Eugene Okoi Ifere

Abstract

Empirical evidence has shown that the result of the exact channel of monetary policy transmission in Nigeria is mixed. This paper compared the Factor-augmented vector¨Cauto regression (FAVAR) framework which exploits large data set of 53 with the traditional VAR model that estimates 6 variables to ascertain the exact channel of transmission. Findings from the two models conclude that although both methods generate qualitatively related results, but the FAVAR model is a superior alternative over VAR on grounds that monetary policy shocks are better identified using the FAVAR model. Also the FAVAR model does not exhibit the prize puzzle problem found in the VAR but allows for the computation of impulse responses of a large number of variables. Results from both models show that interest rate and credit channels are dominant and strongest channels of monetary policy transmission in Nigeria. Exchange rate and money channels were not significant and pronounced.

Suggested Citation

  • Ngozi Frances Obafemi & Eugene Okoi Ifere, 2015. "Monetary Policy Transmission Mechanism in Nigeria: A Comparative Analysis," Research in World Economy, Research in World Economy, Sciedu Press, vol. 6(4), pages 93-103, December.
    • Handle: RePEc:jfr:rwe111:v:6:y:2015:i:4:p:93-103
    DOI: 10.5430/rwe.v6n4p93
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    References listed on IDEAS

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    1. Lwazi Senzo Ntshangase & Sheunesu Zhou & Irrshad Kaseeram, 2023. "The Spillover Effects of US Unconventional Monetary Policy on Inflation and Non-Inflation Targeting Emerging Markets," Economies, MDPI, vol. 11(5), pages 1-15, May.
    2. Jackson, Emerson Abraham & Barrie, Mohamed Samba & Tamuke, Edmund, 2023. "Effectiveness of the Interest Rate Channel of Monetary Policy Transmission Mechanism in Sierra Leone," MPRA Paper 117478, University Library of Munich, Germany, revised 06 May 2023.
    3. Iwedi Marshal, 2019. "Monetary Policy Transmission Channels and Economic Growth in Nigeria," Asian Journal of Economics and Empirical Research, Asian Online Journal Publishing Group, vol. 6(2), pages 93-100.
    4. O. Klishchuk, 2018. "The low sensibility of monetary transmission mechanism in low-income countries," Economy and Forecasting, Valeriy Heyets, issue 4, pages 129-150.
    5. A. Ajisafe, Rufus & D. Odejide, Adekunle & M. Ajide, Folorunsho, 2021. "Monetary Policy And Financial Stability In Nigeria," Ilorin Journal of Economic Policy, Department of Economics, University of Ilorin, vol. 8(2), pages 17-35, June.
    6. Oparah Felix Chukwudi & James Tumba Henry, 2020. "Monetary Policy and Financial Stability in the Nigerian Banking Industry," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 11(1), pages 82-114, January.
    7. Evans, Olaniyi, 2021. "The Curious Case of Petro-Monetary Transmission Mechanism in Oil-Producing Countries: An Analysis of the Effect of Oil Price on Inflation in Nigeria," MPRA Paper 118198, University Library of Munich, Germany.

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