Interaction effect of fiscal and monetary policies on the level of inflation in Nigeria
Inflation, a persistent economic challenge in Nigeria, erodes purchasing power, distorts investment decisions, and exacerbates inequality. This research estimates the interaction effects of fiscal and monetary policies on inflation, focusing on the coordination challenges between these policy framew...
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| Format: | Online |
| Language: | English Spanish |
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Universidad Francisco de Paula Santander
2025
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| Subjects: | |
| Online Access: | https://revistas.ufps.edu.co/index.php/profundidad/article/view/4957 |
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| Summary: | Inflation, a persistent economic challenge in Nigeria, erodes purchasing power, distorts investment decisions, and exacerbates inequality. This research estimates the interaction effects of fiscal and monetary policies on inflation, focusing on the coordination challenges between these policy frameworks. Using an ARDL model, the research incorporates key variables such as real GDP, total government expenditure, money supply, fiscal deficits and others. The findings reveal that interest rate and money supply significantly influence inflation, highlighting the dominant role of monetary policy. Conversely, fiscal spending shows no direct long-run impact on inflation, while fiscal deficits contribute to inflationary pressures. The coefficient of interaction between monetary and fiscal policies demonstrates a modest stabilizing effect, underscoring the need for coordinated policy efforts. The study identifies a lack of synchronization between fiscal and monetary policies as a critical factor exacerbating inflation volatility. Structural issues, such as exchange rate instability and the informal economy, further complicate inflation management. Recommendations include prioritizing money supply control, fostering fiscal-monetary coordination, and addressing the structural factors underlying inflation. This research provides actionable insights for policymakers to design sustainable strategies aimed at achieving macroeconomic stability and controlling inflation in Nigeria. |
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