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The Impact of Interest Rate Channel of Monetary Policy on Output and Prices in Nigeria: An Unrestricted VAR Approach

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  • Onanuga, Abayomi
  • Onanuga, Olaronke

Abstract

This paper uses the vector auto-regression analytical method to examine the interest rate channel of monetary policy and to compare the period after the Structural Adjustment Period (1986Q1-1999Q1) with the period of the civilian administration (1999Q2-2012Q4) in Nigeria. The results of the second period indicated that monetary tightening leads first to an immediate fall in real output in the first 3 months reaching a maximum decline in 9 months. The first period indicated that real output start to decline after 6 months reaching a maximum decline in 12months. In response to monetary policy, for the second period, domestic prices did not start to decline until after 6months and it never returns to equilibrium. The findings for the first period indicate that prices started to rise after 4months and reach its peak in 12 months after the shock. We found evidence of interest channel in the two periods but monetary policy is more effective in the latter period compared to the earlier period.

Suggested Citation

  • Onanuga, Abayomi & Onanuga, Olaronke, 2014. "The Impact of Interest Rate Channel of Monetary Policy on Output and Prices in Nigeria: An Unrestricted VAR Approach," MPRA Paper 83322, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:83322
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    References listed on IDEAS

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    1. Ben S. Bernanke & Mark Gertler, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 27-48, Fall.
    2. Rokon Bhuiyan, 2012. "Monetary transmission mechanisms in a small open economy: a Bayesian structural VAR approach," Canadian Journal of Economics, Canadian Economics Association, vol. 45(3), pages 1037-1061, August.
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    Cited by:

    1. Gbore O. Olubukola & Simon-Oke O. Olayemi, 2020. "Empirical Analysis of Monetary Policy Channels and the Nigerian Economy," International Journal of Finance, Insurance and Risk Management, International Journal of Finance, Insurance and Risk Management, vol. 10(2), pages 116-132.
    2. Fazal, Rizwan & Rehman, Syed Aziz Ur & Bhatti, M. Ishaq, 2022. "Graph theoretic approach to expose the energy-induced crisis in Pakistan," Energy Policy, Elsevier, vol. 169(C).

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    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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