Asymmetric Effect of Monetary Policy Shocks on Output and Prices in Nigeria

Abstract

This study investigated the asymmetric effect of positive and negative monetary policy shocks on output and prices in Nigeria using interest rate shocks. This was with the view to ascertaining the impact of monetary policy on sustainable output growth and price stability in Nigeria from 1986 to 2016. Quarterly secondary data from 1986: Q1 to 2016:Q4 on output (GDP), interest rate, money supply, inflation rate, investment and real effective exchange rate were sourced from Central Bank of Nigeria (CBN) Statistical Bulletin, 2016 and World Development Indicator (WDI), 2018. Data collected were analyzed using Non-linear Autoregressive Distributive Lag (NARDL) econometric techniques. The results showed that in the short run, negative shocks have more significant effects (2.7%) on output than positive shocks (1.2%) but the effects of positive and negative monetary policy shocks do not have significant effects on price level; while in the long run, positive shocks have more significant effects than the negative shocks on both output (3.1% and 1.9%) and prices (-51.1%and 45.1%). The study concluded that monetary policy shocks have asymmetric effects on output and prices in Nigeria both in the short and long run period.

Keywords:  Asymmetric, Policy Shocks, Positive, Negative, Output, Prices