Monetary Policy and Inclusive Growth: How Costly are Disinflations to Inclusion in Nigeria?

Abstract

This paper estimates the cost of disinflation to inclusive growth in Nigeria using quarterly data for the period 1960q1 – 2015q2. Two alternative methodologies are used to estimate the size of the cost of disinflation to inclusive growth in Nigeria. The paper also estimates the effect of central bank independence on the size of this cost. It was found that the cost of disinflation to output and unemployment and, hence, to inclusive growth is small during the sample period. In the period following central bank’s independence, however, the cost of disinflation had fallen to zero. The paper, therefore, concludes that the contractionary monetary policy that disinflations necessitate have very small effects on the inclusiveness of growth in Nigeria. In fact, such costs are nearly non-existent in the last few years. One implication of this finding is that the Central Bank of Nigeria may have little to fear in terms of potential costs of disinflation to inclusive growth, especially through its effect on output and unemployment.