Effects of Anticipated and Unanticipated Monetary Policy on Output in Nigeria

Abstract

Controversy abounds in both theoretical and empirical literature on the relative importance, and the real effects of anticipated and unanticipated monetary policy on output. Early authors argue that outputs are affected only by unanticipated monetary policy shocks while Keynesian theorists believe in the efficacy of the anticipated monetary policy shocks to orchestrate real effects on the economy. On this backdrop, this present study examines the effects of anticipated and unanticipated monetary policy on output in Nigeria using annual secondary data from 1986 to 2020. The study employs Autoregressive Distributed Lag (ARDL) model to estimate how anticipated and unanticipated monetary policy affects output in Nigeria. Our results show that there exists a long run level relationship among anticipated and unanticipated monetary policy and output in Nigeria. The results also show that the effect of anticipated monetary policy is neutral on output while unanticipated monetary policy has a significant positive effect on output. Therefore, the study aligns with the rational expectation theory that only the unanticipated monetary shocks affect the real economy.