IDEAS home Printed from https://ideas.repec.org/a/ine/journl/v55y2022i64p113-128.html
   My bibliography  Save this article

Optimal Fiscal and Monetary Policy Under Uncertainty in Nigeria: A Markov-Switching Dynamic Approach

Author

Listed:
  • Rufus Adebayo AJISAFE

    (Obafemi Awolowo University,Ile-Ife,Osun State,Nigeria)

  • Kazeem FASOYE

    (Department of Economics,Obafemi Awolowo University,Ile-Ife,Osun State, Nigeria)

  • Musbau Olaniyan FATAI

    (Obafemi Awolowo University,Ile-Ife,Osun State, Nigeria)

  • Folorunsho M. AJIDE

    (University of Ilorin,Ilorin,Nigeria)

Abstract

The effectiveness of the conduct of fiscal and monetary policy under uncertainty in Nigeria between 1980 and 2020 was examined using a Markov-switching dynamic regression model to b estimate the uncertainty as portrayed by monetarists/ neo-Keynesians. The results reveal an ineffective conduct of fiscal and monetary policy under uncertainty in Nigeria as it is shown that the uncertainty about the impact of fiscal and monetary policy in the future surpasses the existing uncertainty as indicated by the higher probability values. b The study recommends a dominance of monetary policy rather than fiscal policy if the policy thrust of the government is to reduce policy uncertainty in the economy both at current and future periods.

Suggested Citation

  • Rufus Adebayo AJISAFE & Kazeem FASOYE & Musbau Olaniyan FATAI & Folorunsho M. AJIDE, 2022. "Optimal Fiscal and Monetary Policy Under Uncertainty in Nigeria: A Markov-Switching Dynamic Approach," Romanian Journal of Economics, Institute of National Economy, vol. 55(2(64)), pages 113-128, December.
    • Handle: RePEc:ine:journl:v:55:y:2022:i:64:p:113-128
    as

    Download full text from publisher

    File URL: http://www.revecon.ro/articles/2022-2/2022-2-7.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Brunner, Karl & Meltzer, Allan H, 1972. "Money, Debt, and Economic Activity," Journal of Political Economy, University of Chicago Press, vol. 80(5), pages 951-977, Sept.-Oct.
    2. Jinill Kim & Francisco Ruge‐Murcia, 2019. "Extreme Events And Optimal Monetary Policy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 60(2), pages 939-963, May.
    3. Michael T. Kiley & John M. Roberts, 2017. "Monetary Policy in a Low Interest Rate World," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 48(1 (Spring), pages 317-396.
    4. Kimura, Takeshi & Kurozumi, Takushi, 2007. "Optimal monetary policy in a micro-founded model with parameter uncertainty," Journal of Economic Dynamics and Control, Elsevier, vol. 31(2), pages 399-431, February.
    5. Olufemi Samuel Adegboyo & Sunday Anderu Keji & Oluwadamilola Tosin Fasina, 2021. "The impact of government policies on Nigeria economic growth (case of fiscal, monetary and trade policies)," Future Business Journal, Springer, vol. 7(1), pages 1-14, December.
    6. Lucas, Robert Jr. & Stokey, Nancy L., 1983. "Optimal fiscal and monetary policy in an economy without capital," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 55-93.
    7. Ng'ang'a, William Irungu & Chevallier, Julien & Ndiritu, Simon Wagura, 2019. "Investigating fiscal and monetary policies coordination and public debt in Kenya: Evidence from regime-switching and self-exciting threshold autoregressive models," Economics Discussion Papers 2019-40, Kiel Institute for the World Economy (IfW Kiel).
    8. Milton Friedman, 1971. "A Theoretical Framework for Monetary Analysis," NBER Books, National Bureau of Economic Research, Inc, number frie71-1, January.
    9. Giannoni, Marc P., 2002. "Does Model Uncertainty Justify Caution? Robust Optimal Monetary Policy In A Forward-Looking Model," Macroeconomic Dynamics, Cambridge University Press, vol. 6(1), pages 111-144, February.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Karantounias, Anastasios G., 2023. "Doubts about the model and optimal policy," Journal of Economic Theory, Elsevier, vol. 210(C).
    2. Goodhart, Charles, 1989. "The Conduct of Monetary Policy," Economic Journal, Royal Economic Society, vol. 99(396), pages 293-346, June.
    3. Campbell Leith & Eric Leeper, 2016. "Understanding Inflation as a Joint Monetary-Fiscal Phenomenon," Working Papers 2016_01, Business School - Economics, University of Glasgow.
    4. Luo, Yulei & Nie, Jun & Young, Eric R., 2014. "Model uncertainty and intertemporal tax smoothing," Journal of Economic Dynamics and Control, Elsevier, vol. 45(C), pages 289-314.
    5. Dmitry Matveev, 2021. "Time‐Consistent Management of a Liquidity Trap with Government Debt," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 53(8), pages 2129-2165, December.
    6. Andrew T. Levin & Alexei Onatski & John Williams & Noah M. Williams, 2006. "Monetary Policy under Uncertainty in Micro-Founded Macroeconometric Models," NBER Chapters, in: NBER Macroeconomics Annual 2005, Volume 20, pages 229-312, National Bureau of Economic Research, Inc.
    7. Zhao, Mingjun, 2007. "Monetary policy under misspecified expectations," Journal of Economic Dynamics and Control, Elsevier, vol. 31(4), pages 1278-1299, April.
    8. Giuseppe Ferrero & Mario Pietrunti & Andrea Tiseno, 2019. "Benefits of gradualism or costs of inaction? Monetary policy in times of uncertainty," Temi di discussione (Economic working papers) 1205, Bank of Italy, Economic Research and International Relations Area.
    9. Vitor Gaspar & Anil K. Kashyap, 2006. "Stability First: Reflections Inspired by Otmar Issing's Success as the ECB's Chief Economist," NBER Working Papers 12277, National Bureau of Economic Research, Inc.
    10. Kimura, Takeshi & Kurozumi, Takushi, 2007. "Optimal monetary policy in a micro-founded model with parameter uncertainty," Journal of Economic Dynamics and Control, Elsevier, vol. 31(2), pages 399-431, February.
    11. Sargent, Thomas J., 1996. "Expectations and the nonneutrality of Lucas," Journal of Monetary Economics, Elsevier, vol. 37(3), pages 535-548, June.
    12. Stanley L. Winer, 1979. "Short-Run Monetary-Fiscal Influences in a Federal State: with Application to the Canadian Economy, 1947 to 1973," Public Finance Review, , vol. 7(4), pages 395-424, October.
    13. Naoto Soma, 2021. "Parameter Uncertainty and Effective Lower Bound Risk," IMES Discussion Paper Series 21-E-11, Institute for Monetary and Economic Studies, Bank of Japan.
    14. Leitemo, Kai & Söderström, Ulf, 2008. "Robust monetary policy in a small open economy," Journal of Economic Dynamics and Control, Elsevier, vol. 32(10), pages 3218-3252, October.
    15. Shin-Ichi Fukuda, 2012. "Infrequent Changes Of The Policy Target: Robust Optimal Monetary Policy Under Ambiguity," Global Journal of Economics (GJE), World Scientific Publishing Co. Pte. Ltd., vol. 1(02), pages 1-27.
    16. Michael D. Bordo & Anna J. Schwartz, 2004. "IS-LM and Monetarism," History of Political Economy, Duke University Press, vol. 36(5), pages 217-239, Supplemen.
    17. V. Vance Roley, 1983. "Asset Substitutability and the Impact of Federal Deficits," NBER Working Papers 1082, National Bureau of Economic Research, Inc.
    18. Leeper, E.M. & Leith, C., 2016. "Understanding Inflation as a Joint Monetary–Fiscal Phenomenon," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 2305-2415, Elsevier.
    19. Chesang, Laban K. & Naraidoo, Ruthira, 2016. "Parameter uncertainty and inflation dynamics in a model with asymmetric central bank preferences," Economic Modelling, Elsevier, vol. 56(C), pages 1-10.
    20. Jorge Fernández-Baca, 1996. "Robert Lucas, Premio Nobel de Economía 1995. Cómo un historiador se convirtió en el economista más importante del siglo XX," Apuntes. Revista de ciencias sociales, Fondo Editorial, Universidad del Pacífico, vol. 23(38), pages 11-23.

    More about this item

    Keywords

    monetary policy; fiscal policy; markov switching; regime; uncertainty;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ine:journl:v:55:y:2022:i:64:p:113-128. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Valentina Vasile (email available below). General contact details of provider: https://edirc.repec.org/data/inacaro.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.