Abstract
This paper empirical study the effectiveness of monetary and fiscal policy instruments in stabilizing Nigerian economy from 1981 - 2015. The data were sourced from Central Bank of Nigeria, National Bureau of Statistics and World Development Index (WDI). The data was tested for stationarity using Augmented Dickey Fuller (ADF test while the co-integration was conducted using Johansen’s methodology. Error Correction Model (ECM) was employed for the empirical analysis. The results show that, there is long run equilibrium relationship between monetary and fiscal policy instruments and economic growth in Nigeria. ECM has the expected negative sign and is between the accepted region of less than unity. This was confirmed by the positive relationship between money supply, government expenditure and revenue while interest rate and budget deficit have negative relationship with economic growth. Therefore, it recommended that there should be effective use of money supply and government expenditure as key instruments of monetary and fiscal policy in Nigeria in order to improve the economy. Also, government annual budget implementation and execution of projects should be monitored to ensure that the objectives of the budget is achieved, which include price stability, economic growth, increase employment, income distribution among others. This can be done by eliminating corruption, leakages of resources and inappropriate use of resources. Interest rate should the reduced to one-digit to encourage borrowing, increase investment and output. These will bring the economy to a steady state.
Highlights
The macroeconomic policy plays crucial role in providing sustainable and credible economic stability in a country, creating the environment for the fast economic growth
The evidences from analyses from this study revealed that, there exist a short-run and long-run relationship between monetary and fiscal policy instruments and economic growth in Nigeria
This was confirmed by the positive relationship between money supply, government expenditure and revenue while interest rate and deficit finance have negative relationship with economic growth
Summary
The macroeconomic policy plays crucial role in providing sustainable and credible economic stability in a country, creating the environment for the fast economic growth. Monetary policy is mostly focused on accomplishing stability of prices avoiding high inflation rates, stable and stimulating exchange rate resulting in positive balance of payment and satisfactory level of Social Sciences 2018; 7(3): 133-140 employment. It influences the output level and economic growth rate and moderates excessive aggregate liquidity in the economy [28]. The problem is that poor management of money supply and government expenditure will lead to increase in general price level, high unemployment rate, balance of payment deficit, unequal distribution of income, poverty etc. Section four and five are empirical analysis, conclusion and policy recommendations respectively
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