Monetary Economics
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- ItemMONETARY POLICY, INFLATION STABILISATION AND OUTPUT GROWTH IN GHANA, 1980-2017(University of Ibadan, 2022-01-19) ABDULAI, IBRAHIMMonetary policy is central to the attainment of low and stable inflation, and long-term growth. Ghana’s inflation has been relatively high and volatile since 1980 with modest economic growth. Inflation averaged 37.3% and 15.4% annually in 1980-2000 and 2001- 2017, respectively. Real Gross Domestic Product (RGDP) grew at 3.2% and 6.2% in the same periods. While various monetary policy strategies had been implemented to stabilise inflation and stimulate growth, the extent to which monetary policy had affected inflation and output has been under-studied. The study, therefore, examined the role of monetary policy in inflation stabilisation and output growth in Ghana from 1980 to 2017. The New Neoclassical Synthesis which emphasises interest rate as a major tool for controlling inflation and output growth was adopted. Three econometric models, namely Fractional Cointegration Vector Autoregression (FCVAR), Nonlinear Autoregressive Distributed Lag (NARDL) and Structural Vector Autoregression (SVAR) were estimated. The FCVAR was used to determine the stabilisation role of monetary policy by examining the short and long-memory properties of inflation and RGDP growth; and the NARDL model was used to examine the long-run (a)symmetry impact of monetary policy on RGDP growth. The SVAR model was employed to determine the impulse response functions taking into consideration the structural monetary transmission mechanisms. The period considered included 1980-2001 when monetary policy targeted monetary aggregates and inflation-targeting (IT) regime (2002-2017) which used Monetary Policy Rate (MPR) as a stabilising instrument. The variables employed were exchange rate, inflation, MPR, money growth and RGDP growth. Quarterly data were collected from Bank of Ghana’s Annual Reports and Ghana Statistical Service’s Bulletins. The estimates were evaluated at a 0.05. The magnitude of the fractional parameters for MPR was 1.24 and 0.79 for money growth. This implies that it took a shorter period for monetary policy to contain inflation and ensure RGDP growth under IT, compared to targeting monetary aggregates. There was a significant negative relationship between MPR and inflation (-0.61), suggesting that an increase in MPR dampened inflation. The impact of MPR on RGDP growth was symmetric (t = - 0.0294), as a percentage change in MPR exerted a proportionate effect on RGDP growth. However, the relationship between money growth and RGDP growth was asymmetric (t = -2.3053). A one-standard-deviation shock from MPR increased inflation up to the fourth quarter, while RGDP growth declined in response to the same shock. Shocks from growth in RGDP, money and MPR contributed 9.31%, 3.25% and 7.36%, respectively to the variation in inflation. Inflation was persistent because it retained 43% of self-shock, indicative of a relatively high inflation inertia. A significant variation in MPR (33.37%) is attributable to inflation shock, implying that the monetary authority responded quickly to deviation of inflation from target. Monetary policy rate had a better stabilisation effect on inflation and a greater impact on output growth than monetary aggregates in Ghana from 1980 to 2017. The use of monetary policy rate should be sustained, while improving its effectiveness through continuous financial sector reforms.
- ItemComparative Impact of Fiscal and Monetary Policies on Stock Market Performance in Nigeria(University of Benin, 2021-08-04) Akinkuotu, OluwayemisiThis study empirically examined the effects of anticipated and unanticipated fiscal and monetary policies on the performance of the stock market. In addition, the study examined the relationship between these policies; whether they act as substitutes or complements in affecting stock market performance. The theoretical contention of Keynesian Economics that a mix of fiscal and monetary policy is the best in achieving macroeconomic objectives serves as the motivation for the study. The study has also been motivated by growing empirical evidence, which shows that the stock market plays an important role in enhancing economic growth. This is because the stock market has been recognized as an important sector of the macro economy, as it stands as a key component of financial system and performs crucial roles for the economic development of a country. However, if the stock market is to perform better, government policies need to be formulated and geared towards the better performance of the stock market. However, there has been no consensus both theoretically and empirically on the effect of government policies on stock market performance, and the relationship between fiscal and monetary policies in Nigeria. The study used quarterly time series data on Nigerian stock market over the period 2000 – 2012. The study proceeded by first testing for Stationarity and cointegration of the variables used in the estimation process, having specified the fiscal and monetary policies vector error correction models, for the first and second objective and the vector autoregressive model for the third objective. The values for the anticipated and unanticipated fiscal and monetary policies obtained thereof were then used in the estimation of a model specified to capture stock market performance, as measured by the value of transaction in the market. The empirical results obtained showed that both anticipated fiscal policy and monetary policy had a negative relationship with stock market performance in the long run. It was noticed that, anticipated monetary policy causes more variations in the performance of the stock market than the anticipated fiscal policy component. There exists unilateral relationship between anticipated fiscal and stock market performance, anticipated monetary policy and stock market, interest rate and stock market, stock market and exchange rate, anticipated fiscal policy and exchange rate and interest rate and exchange rate. However, unanticipated fiscal policy actions have a positive and not significant relationship with the stock market, whilst an unanticipated monetary policy action has a minimal positive and significant effect on the stock market. Unanticipated fiscal policy actions have very little impact in its contributions to the stock market, the unanticipated monetary policy also has little impact but it is of a lower magnitude compared to the unanticipated fiscal policy. On the other hand, both unanticipated fiscal and monetary policies did not have a unilateral or bilateral relationship with the stock market performance. Lastly, the study found that fiscal and monetary policies act as complements in their effect on the performance of the stock market. These findings suggest that policy makers need to exercise considerable caution regarding fiscal-monetary policy stance and stock market regulation in Nigeria.
- ItemTRANSMISSION MECHANISM OF MONETARY POLICY IN NIGERIA(University of Ibadan, 2011-11-06) OREKOYA, SAMUEL OLATUNDEThe Central Bank of Nigeria (CBN) has pursued, among other goals, low and stable domestic price level and output growth using various monetary policy instruments. Despite these efforts, output growth rate averaged 1.32% between 1980 and 1989 and 2.87% between 1990 and 1999. Also, the monetary authority’s inflation rate target of 5.00% in 1992 and 31.00% in 1995 escalated into 44.59% and 72.81% respectively. There has been limited attempt to investigate the channels through which monetary policy affects output and prices in Nigeria. This study, therefore, empirically investigated monetary policy transmission mechanism and sought to establish the relative effectiveness of various monetary policy instruments in Nigeria. A Monetary Transmission Mechanism (MTM), predicated on Mishkin framework, that captures the impact of monetary policy in an economy was employed. The MTM focused on bank lending, exchange rate and interest rate channels that are evident in most developing economies like Nigeria. A Structural Vector Autoregressive (SVAR) model, based on monetary policy transmission dynamics, which identified the magnitude and impact of structural shocks, was developed to test the importance of these channels. Generic, composite and separate models including the impulse responses of the channels were estimated. Variance decomposition was also conducted to determine the magnitude of fluctuation attributable to different shocks. With quarterly data from 1970 to 2008, the time series properties of the models’ variables were ascertained using the Augmented Dickey-Fuller and Phillips-Perron tests. The effectiveness of Reserve Money (RM) as a monetary policy instrument over Interest Rate (IR) was evident as a marginal increase of 0.15% in RM precipitated output and prices decline by 0.20% and 0.60% respectively. The weakness of interest rate (IR) as a policy instrument was shown with an increase of 2.02% in IR yielding no significant response from output and prices. Bank lending declined from 0.89% in the first quarter to 0.23% below the baseline in the second quarter following a marginal increase of 0.05% in RM. Output declined consequently below the baseline by 0.12% and 0.15% while prices rose by 0.15% and 0.10% in the second and third quarters respectively. By implication, the weak response of exchange rate to similar increases in IR of 2.02% and RM of 0.15% suggests that this channel did not capture MTM in Nigeria. Also, output and prices’ non-response to increase in IR of 2.02% and RM of 0.15% suggested that interest rate channel is weak. Bank lending channel remained the existing MTM in Nigeria, while the impact of monetary policy shock on output and prices occurred only after a time-lag of 6years. Reserve Money was a potent policy instrument with output responding more to policy variations than prices. Bank lending remained a significant channel for propagating policies to target variables. The CBN should therefore focus more on the use of RM as a policy instrument rather than a hybrid of reserve money and interest rate. There should also be emphasis on price level stability since this has the tendency of fostering output growth.
- ItemEXCHANGE RATE, OUTPUT AND INFLATION IN NIGERIA (1970-2007)(University of Ibadan, 2010-09-06) JAMEELAH, OMOLARA YAQUBExchange rate policy is central to improving the economic performance of a nation. Over the years, Nigeria adopted both the fixed and managed float exchange rate systems in her attempt at attaining a realistic exchange rate. This is to ensure efficient allocation of foreign exchange resources that may pave way for a non-inflationary growth and a well diversified economy. However, the attainment of these goals remained elusive. Earlier studies on the effects of exchange rate on the Nigerian economy ignored differences in sectoral output responses to changes in exchange rate and economic agents’ expectations. This study, therefore, investigated the effects of anticipated and unanticipated changes in exchange rate on aggregate and sectoral output, and inflationary trends in Nigeria between 1970 and 2007. A macroeconometric model, based on a modified investment-saving and the liquiditymoney supply framework, was employed using secondary data, to capture the direct and indirect relationships between exchange rate movements, output and inflation. Exchange rate was split into anticipated and unanticipated components using the Autoregressive Moving Average method. The behavioural equations were estimated with the three-stage-least-squares technique and a general-to-specific estimation methodology was employed to ensure that important information was not left out. Statistical tests were used to confirm the goodness of fit of the estimated equations. The Theil’s inequality coefficients and the root mean squared errors were used to gauge the model’s efficiency and tracking ability. Their parameter values were within acceptable range. The model was then used to carry out ex post simulations of the effects of anticipated and unanticipated exchange rate depreciation on output and inflation. Some differences in sectoral output responses to anticipated and unanticipated depreciation were observed. The coefficients of anticipated exchange rate in the equations for aggregate output, agriculture, manufacturing, and output of services were -0.05, -0.15, -0.01, and 0.09, respectively. All of these were statistically significant at 5.00%, implying that anticipated depreciation reduced aggregate output and outputs of agricultural and manufacturing sectors, while it increased services sector’s output. Unanticipated exchange rate had insignificant negative effects on aggregate and sectoral outputs, except for manufacturing where the effect was positive. Anticipated depreciation had a strong inflationary effect with a significant coefficient of 0.28, while the impact of unanticipated exchange rate on inflation was negligible. Simulation results indicated that, on the average, a 15.00% anticipated depreciation would reduce aggregate output by 2.12% and agricultural, manufacturing and services sectors’ outputs by 9.23%, 2.00%, and 5.32% respectively; while it would raise inflation by 17.17%. Anticipated real exchange rate depreciation had significant contractionary effects on aggregate and sectoral outputs (except for the services sector) and promoted inflation, while unanticipated depreciation had negligible effects. This implied that policy neutrality hypothesis may not hold for the Nigerian environment and, more importantly, that existing structures could not support an expansionary argument for exchange rate depreciation during the period of study.
- ItemEssays on Monetary Policy, Institutions and Terms of Trade Shocks in Emerging Market Economies(University of Cape Town, 2012-11-06) Hove, SeedwellAbstract This thesis focuses on two important features of emerging market economies: institutional weaknesses and the exposure to commodity terms of trade shocks and how they shape the macroeconomic dynamics and the conduct of monetary policy. These issues are discussed in three essays. The first essay empirically evaluates the role of institutional structures in inflation targeting in emerging market economies (EMEs). The second essay theoretically investigates the appropriate monetary policy responses to commodity terms of trade shocks using a multi-sector New Keynesian dynamic stochastic general equilibrium (DSGE) model. Finally, the third essay empirically analyses the .responses of different monetary policy regimes to commodity terms of trade shocks in emerging market economies. The first essay investigates whether monetary, fiscal and financial institutional structures really matter for the achievement of inflation targets in emerging market economies. Particular emphasis is placed on the extent to which inflation deviations from target bands are affected by central bank independence, fiscal discipline and financial sector development. The study contnoutes to the literature by taking stock of the intrinsic role played by institutional structures in the achievement of inflation targets since the adoption of inflation targeting in EMEs. Using the panel ordered logit model, the analysis shows that improvement in central bank independence, fiscal discipline and financial systems reduces the probability of inflation target misses. Precisely, countries with more independent central banks tend to achieve inflation targets more frequently. A one percent increase in central bank independence increases the probability of achieving the target band by 0.16%, while reducing the probability of inflation being above the target band by 0.11%. Moreover, countries with weak fiscal institutions and less developed financial systems have a higher probability of missing their inflation targets. The improvement in institutional structures also enhances the effectiveness of monetary policy. The thesis also provides evidence that other macroeconomic and structural variables such as exchange rate gap, output gapt inflation target horizon and level of openness explain inflation target misses. The results suggest that there is need to continue to reform institutional structures in order to achieve sustainable price stability.