Effectiveness of Monetary Policy Transmission Mechanism in an Implicit Inflation Targeting Regime: The Case of Nigeria

Abstract

The study examines the effectiveness of the monetary policy transmission mechanism in Nigeria by estimating a sticky-price DSGE model using the Bayesian estimation approach. This study is important given the implicit inflation targeting framework employed in the implementation of monetary policy in the country. The study employs quarterly data from 2000:1 to 2019:4 to estimate the two main categories of monetary policy frameworks, monetary aggregate and implicit inflation targeting, respectively. Data are sourced from World Development Indicator (online version). Empirical results show that the monetary policy transmission channels are effective in transmitting policy impulses to the economy within this regime. However, the monetary aggregate framework that is made explicit dampens the achievement of this framework.   The study, therefore, concludes that inflation targeting should be made explicit in the country in other to reap the benefits embedded in the framework.