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Price Rigidity and Monetary Non-Neutrality in Developing Countries: Evidence from Nigeria

Listed author(s):
  • Nathaniel E. Urama

    (Department of Economics, University Reading, UK Department of Economics, University of Nigeria, Nsukka, Nigeria.)

  • Moses O. Oduh

    (Debt Management Office (DMO), The Presidency, Abuja, Nigeria)

  • Emmanuel O. Nwosu

    (Department of Economics, University of Nigeria, Nsukka, Nigeria)

  • Augustine C. Odo

    (Godfrey Okeye University, Enugu, Nigeria)

Registered author(s):

    In an attempt to find out the degree of monetary non-neutrality in Nigeria we started from finding out the size of price rigidity in the country. Computation with Ball and Romer method showed that price rigidity is optimal decision for firms in Nigeria only when the menu cost is well above 2.28% of the firm’s revenue which is on the high side, showing the likelihood of weak price rigidity in the country. Confirming this, the IRFs of the SVAR shows that the response of inflation to nominal shock has only one period lag. These combined results led to a small though persistent response of output to the nominal shock. The result of the study therefore points towards large nominal and small real effect of monetary policy in Nigeria and conclude that monetary policy will be a better option for contractionary plan but not for an expansionary plan.

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    Article provided by Econjournals in its journal International Journal of Economics and Financial Issues.

    Volume (Year): 3 (2013)
    Issue (Month): 2 ()
    Pages: 525-536

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    Handle: RePEc:eco:journ1:2013-02-25
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    1. Christiano, Lawrence J. & Eichenbaum, Martin & Evans, Charles L., 1999. "Monetary policy shocks: What have we learned and to what end?," Handbook of Macroeconomics,in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 2, pages 65-148 Elsevier.
    2. Zhou, Peng, 2010. "An Empirical Study on Price Rigidity," Cardiff Economics Working Papers E2010/11, Cardiff University, Cardiff Business School, Economics Section, revised Nov 2010.
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