conducive to rapid positive growth and development; the implementation of the Right from the onset, the British economic policy in southwestern N that by this new method of taxation, the burden of the indigenous Yoruba tax payers . the victim in a tripartite relationship between the planters, the middlemen and the. Keywords: Monetary policy; Fiscal policy; St. Louis equation; Nigeria They see aggregate demand as a key driver of economic growth and argue that The equation is an estimated relationship (using the Almon lag procedure) between In a study of 5 African countries, Bynoe () discovered that monetary policy. and no significant relationship between the specific explanatory variables fiscal policy on economic growth in Nigeria for the period - ? .. Centre for the Study of African Economies, Conference on Economic Development in.
In contrast to both the classical and Keynesian economists, the real business cycle theory suggests that both monetary and fiscal policy are not capable of influencing the economy. Lambertini and Rovelli argue that monetary and fiscal authorities may not have the same motivation and goals but their policy choices have a crucial impact on aggregate demand in the economy. According to Adefeso and Mobolajimonetary and fiscal policy are inseparable in macroeconomic management.
Therefore, government need to strike a balance by finding an appropriate mix of these policies so that the influence of one on the economy does not neutralise the desired outcome of the other. The influence of monetary and fiscal policy on the economy tend to differ as government implement both policies simultaneously.
The earliest effort to resolve the monetary-fiscal policy debate can be traced to Andersen and Jordan which developed a model referred to as the Andersen-Jordan A-J equation or, as it widely referred to as the St.
Louis equation to examine the relative impact of monetary and fiscal policy in the stabilisation of the United States economy. The equation is an estimated relationship using the Almon lag procedure between changes in gross national product and changes in money supply and high-employment Federal expenditures Carlson, According to Batten and Thortonthe major critiques of the A-J equation are omission of relevant exogenous variables, simultaneous equation bias and failure to identify appropriate measures of monetary and fiscal policy.
Other critiques include heteroskedasticity problem, endogeneity problem and the use of the Almon lag procedure.
Acta Universitatis Danubius. Œconomica, Vol 13, No 1 (2017)
Over the years, the St. Louis equation has witnessed empirical modifications and has been widely used to determine the relative influence of monetary and fiscal policy in both developed and developing economies. In Nigeria, few studies have employed the St. Louis equation among which are AjayiAigbokhanAsogu and Adefeso and Mobolaji This study attempts to give further evidence on the relative impact of monetary and fiscal policy in Nigeria using the St.
The remainder of this study is as follows: Section 2 provides the literature review, Section 3 centres on the methodology, Section 4 presents the empirical results and Section 5 offers the conclusion.
Prior Studies on Developed and Developing Countries Andersen and Jordan specified nominal gross national product as dependent on monetary policy and fiscal policy and found that monetary policy significantly affect the US economy while fiscal policy did not. In their study, high employment receipts adjusted for inflation was used to measure fiscal policy while monetary base adjusted for changes in reserve requirements and the adjusted monetary base minus currency in circulation were used to measure monetary policy.
Carlson estimated the St. Louis equation using the percentage changes in the variables rather than the first difference form used in the A-J equation and still found that fiscal policy does not play a significant role in economic stabilisation.
Hafer observed that once the growth of money is considered, the impact of fiscal policy is inconsequential. Batten and Hafer criticised the A-J equation for not capturing international trade, hence they included export. Using a sample of 6 developed economies, the study is consistent with Andersen and Jordan for all the economies.
Batten and Thorton reaffirmed the findings of Andersen and Jordan and found no evidence to support its critics.
Evaluating the Impact of Monetary Policy on the Growth of Emerging Economy: Nigerian Experience
Chowdhury found that fiscal policy affects economic activities in Bangladesh more than monetary policy. In a study of 5 African countries, Bynoe discovered that monetary policy exert greater effect on these countries than fiscal policy.
Jayaraman showed that fiscal policy failed to produce a growth-stimulating impact on the economic growth of 4 South Pacific Island countries. Dahalan and Jayaraman found that fiscal policy is more influential than monetary policy on the economy of Fiji. Contrary to ChowdhuryRahman observed that monetary policy plays a greater role than fiscal policy in enhancing the economic growth of Bangladesh. Belliveau found that monetary policy is more effective than fiscal policy in the United States.
Also, the study supported the notion that monetary and fiscal policy have the ability to influence output and economic stability. Topcu and Kuloglu revealed that monetary policy exert a significant positive influence on the Turkish economy in the short run.
Conversely, in the long run, no significant impact was observed for monetary and fiscal policy. Moayedi observed that fiscal policy stimulated growth more than monetary policy in Iran. Adeniji and Evans found evidence to show that monetary and fiscal policy have been effective in stabilising the economy of 8 African countries.
The study also revealed that monetary policy provide greater economic benefits than fiscal policy. On the contrary, Aigbokhan discovered that fiscal policy is more advantageous in promoting economic activities than monetary policy. Asogu discovered that money supply is statistically significant while government expenditure and export are not statistically significant, thus suggesting that monetary policy is effective on the economy while fiscal policy is not.
Ajisafe and Folorunso evaluated the efficacy of monetary and fiscal policies on the economy and revealed that monetary policy has greater impact on the economy than fiscal policy. Where MODEL V 5 Equation 5 above shall test the impact of inflation rate, interest rate monetary policy ratemoney supply, consumer price index and exchange rate in Nigeria.
The ratio of explained variation to the total variation which is called the coefficient of determination can be represented by R2. It is used to show the percentage of total variation i.
Entrepreneurship and Economic Growth: Does Entrepreneurship Bolster Economic Expansion in Africa?
The ratio lies between 0 and 1 and the nearer to 1, the greater is the explanatory ability of the estimates. However, in order to determine the goodness of fit of the regression line and reliability of the result the quantitative tools such as the adjusted co-efficient of determination adjusted R2T — statistic, f-statistics and the Durbin Watson Statistic will be employed.
It must be noted that in order to realize a strong existing association between monetary policy variables and economic growth, there is need to adopt simple econometric model Error Correction Model ECM to reconcile fluctuations or dynamism that may exist both in the short and long run between the variablesas in the estimation. Recall, the regression of a non-stationarity time series on another non-stationary time series may produce a spurious regression. Therefore, it is essential to affirm whether the variables can be co-integrated by carrying out configuration test.
A linear relationship of two or more no-stationary series, which may be stationary. Where such a stationary that is, I oa linear relationship exists, the non-stationary that is, I 1 however, with a unit root, time series are expected to be co-integrated.
The stationary linear relationship is called co-integrating equation and explained a stable long-run relationship among the non-stationarity time series variables [25, 26, 27]. The model stated thus: For this paper, we have applied unit root test to check the stationarity of the variables under study.
Specifically, the Augmented Dickey-Fuller ADF and Phillip-Perron test PP are used; the ADF and PP are used to avoid spurious regression thereby subjecting each of the variables used to unit root test so as to determine their orders of integration since unit root problem is a common feature of most time series data.
Empirical Result The regression test in table 1 below showed that the relationship between real gross domestic product and inflation with R2 0. The negative t-statistics The result further shows that the two variables i. The economic implication of the rightly signed parameter is that the increase in inflation makes naira to have less purchasing power. Nigerian economy is growing very fast, which remains a good trend, but it may allow shortages because the people i. Therefore, it is an option for CBN to introduce countercyclical monetary technique in order to completely abate increasing inflation rate.
The result shows that there is a statistical negative relationship - t-statistics If output does not grow in tandem to meet this increase in demand, an upward pressure on prices will be unveiled.
It can be concluded that changes in money supply have continuously caused higher changes in price, and hence inflation. The exchange rate today shows However, the exchange rate is highly volatile because the rate of change in exchange rate is far higher than the change in output. The present depreciating trend in the exchange rate is due to global crude oil price crash, the negative effect of global economic and financial crunch of has not been completely removed, over dependence on the consumption of imported goods etc.
The result shows that there is a multi —relationships among the economic variables; i. The negative result in inflation and money supply may be as a result of possible money illusion in financial markets, i. This means all the variables are integrated of order 0 and 1. Augmented-Dickey Fuller ADF Test The Phillip-Perron test results in table 7 below showed that real GDP, inflation and real exchange rate are stationary at first difference, but interest rate is stationary at levels, except for money supply that is stationary at second difference.
Based on this evidence, there was a long run relationship exists among the variables. Parsimonious Error Correction Estimates The table 9 above showed results of the Parsimonious Error Correction Estimates that revealed the existence of cointegration among variables in the economic growth models and which is assumed to be appropriate for the study.
In order to ascertain a goodness of fit test, the models that emerged is slightly significant to the over-parameterized ones. The dynamic parsimonious result for model showed that the explanatory variables accounted for The findings showed that The Durbin Watson D.
W statistics of 0. Conclusions This study helps to evaluate the impact of monetary policy on the growth of emerging economy: The study affirmed a long-term existing relationship among real gross domestic product interest rate, inflation, money supply and exchange rate. The paper observed that the improvement recorded in i. Nigerian economy the best in Africa and the world could be attributed to the slight high purchasing power in the country during the period, as well as the application of monetary policy measures by the CBN to mop up excess liquidity in the economy.
The study shows that interest rate, money supply and exchange rate will automatically assist in the mobilization and utilization process of financial resources to achieve a desired national economic growth, but the administration of monetary policy structure is weak in Nigeria. The inability of Monetary Policy Committee MPCpolicymakers, regulators and other concern stakeholders to effectively maximize policy objective may serve as a shortcomings limiting the objective of price stability, stable exchange rate and national economic growth.
CBN and NDIC should formulate policies and initiatives to re-position the banks, non-financial institutions and financial market in order to actively play its roles in the growth of the Nigerian economy. The paper further recommends a greater synergy existence between monetary and fiscal policies as economic stability stimulus, because continued expansionary monetary policies among developed countries would be required, but negative spillover effects into capital-flow and exchange-rate volatility must be thoroughly controlled and managed.
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