A Quantitative Analysis of the Relative Efficiency of Monetary and Fiscal Policy in Macroeconomic Management in Nigerian Economy

Abstract

The study explores the relative efficiency of monetary and fiscal policy in macroeconomic management in Nigeria. To this end, the paper using autoregressive distributed lag (ARDL) approach, examines the relative efficiency of the above macroeconomic policy tools in Nigeria between 1981 and 2020 using annual time series data. The results from the analysis revealed that few of the variable indicators at different lags were negatively signed contrary to theoretical expectation. This was not unexpected as most of the government expenditures do not translate to better output that will enhance improvement in the economic activities. Also, the results further demonstrate a direct relationship of more lagged periods of the variables implying a positive response to economic activities. In the same line of action, the results of the study show that fiscal policy rather than monetary policy exerts a greater impact on economic activities in Nigeria. The emphasis on monetary action on the part of the government has led to bigger distortion in the economy of Nigeria. The study hereby recommends a higher concentration on the use of fiscal policy particularly expansionary fiscal policy to induce the economic activities and complement it with contractionary fiscal policy when the economy is characterized by inflationary issues. The paper further added that the government should also compliment the use of fiscal policy with monetary policy where necessary.