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Modelling Policy Options for Nigeria: Fiscal Responsibility, Monetary Credibility, and Regional Integration

In: Economic Policy Options for a Prosperous Nigeria

Author

Listed:
  • Xavier Debrun
  • Paul Masson
  • Catherine Pattillo

Abstract

As in many other developing economies, establishing a low inflation environment has been a challenge in Nigeria; and ways to improve the formulation and implementation of monetary policy have been at the forefront of the policy debate. An array of institutional reforms expected to foster the credibility of a commitment to price stability could potentially be envisaged. In this chapter, we focus on two alternative reform paths currently under discussion, namely the formation of a monetary union with neighbouring countries, and strengthening the independence of the Central Bank while keeping a national currency. In contrast to most of the existing literature, our analysis is based on a model that incorporates two types of distortions leading to excessive inflation: the desire to stimulate out-put and the need to finance government spending. The model clarifies how the two specific policy frameworks considered here might remedy those problems. While both options can potentially yield significant credibility gains, the analysis points to the importance of capitalizing on the recent record of improved fiscal discipline. Specifically, structural fiscal reforms that would improve expenditure efficiency, and preclude interference between the conduct of monetary policy and public finances, appear to deliver significant credibility gains.

Suggested Citation

  • Xavier Debrun & Paul Masson & Catherine Pattillo, 2008. "Modelling Policy Options for Nigeria: Fiscal Responsibility, Monetary Credibility, and Regional Integration," Palgrave Macmillan Books, in: Paul Collier & Chukwuma C. Soludo & Catherine Pattillo (ed.), Economic Policy Options for a Prosperous Nigeria, chapter 4, pages 93-120, Palgrave Macmillan.
  • Handle: RePEc:pal:palchp:978-0-230-58319-1_5
    DOI: 10.1057/9780230583191_5
    as

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