Is the Phillips curve useful for monetary policy in Nigeria?
AbstractThe objective of this article is to determine if the Phillips curve is a relevant tool to conduct monetary policy in African countries wishing to adopt an inflation-targeting regime. I choose Nigeria as a case of study because it is in the early stage of the implementation of this regime. I estimate a medium-sized model for monetary policy analysis. The model reflects a synthesis between the New Keynesian and the Real Business Cycle (RBC) approaches. Then I estimate the model by using Bayesian econometric technique in order to overcome the shortage of data availability. The study concludes that there is evidence that central banks can control the inflation rate through a Phillips curve, a Taylor rule that includes the exchange rate, and the sterilization of the resources from oil exports. Nevertheless, there are limits to the stabilization program. The same evidence suggests that it is important to implement a credible inflation-targeting regime to reduce inflation gradually, instead of abrupt stabilization attempts with high costs in lost output.
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Bibliographic InfoPaper provided by Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines in its series ILADES-Georgetown University Working Papers with number inv250.
Length: 37 pages
Date of creation: Jun 2010
Date of revision:
Find related papers by JEL classification:
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- O23 - Economic Development, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development
This paper has been announced in the following NEP Reports:
- NEP-AFR-2010-07-24 (Africa)
- NEP-ALL-2010-07-24 (All new papers)
- NEP-CBA-2010-07-24 (Central Banking)
- NEP-MAC-2010-07-24 (Macroeconomics)
- NEP-MON-2010-07-24 (Monetary Economics)
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