Abstract
The paper discusses the fiscal-monetary coordination and the resultant outcomes in macroeconomic aggregates from theoretical and empirical perspectives. The game-theoretic technique was also used to analyse the policy mix conundrum vis-a-vis the fiscal-monetary policies interaction and how that translates into optimal outcomes in an economy. However, the situation of making or forcing monetary policy to be subordinate to fiscal policy may still not generate socially optimal results. This is not far-fetched as the payoffs in the game-theoretic model suggest the presence of minimal coordination problem but high policy conflict even if both authorities are disciplined. Coordination problem and goal conflict seem to be non-existent - when both fiscal and monetary policy blocks are committed and responsible in their choices. Further analyses indicate that the policy mix of both fiscal and monetary authorities for inflation seemed complementary. Inflation responded negatively to the shock of debt in the short run. However, in the medium term, the shock becomes positive and later returns to the initial state. The study suggests that policy designs in Nigeria must harmonise both stabilisation and growth objectives to have optimal outcomes.
Highlights
Achieving optimal outcomes in economic management is linked to the relationship between fiscal and monetary policy, among other things
In Nigeria, macroeconomic policymaking involves, among others, the Federal Ministry of Finance; Central Bank of Nigeria; National Planning Commission; Debt Management Office; and Budget Office of the Federation with each attending to specific aspects of policy decisions, as contained in the various Acts that established them
The paper presented a reflections on the relationship between fiscal and monetary policies interactions in Nigeria
Summary
Achieving optimal outcomes in economic management is linked to the relationship between fiscal and monetary policy, among other things. The 2008-2009 global financial crises and the attendant economic recessions have further reinforced unprecedented expectations on economic policy designs, and more importantly the fiscal-monetary interactions Both the central banks and fiscal authorities, have the preoccupation to appropriately design suitable policies in a way to secure high, sustained and inclusive economic growth, and a low, stable inflation and other objectives. Despite the volume of literature which shows the positive relationship between central bank independence and the effectiveness of the monetary policy It should, be noted that monetary policy is not and can never be isolated from other economic policies (including fiscal policy) in stabilising and improving the economy. The roles of the CBN, Federal Ministry of Finance and National Planning Commission in macroeconomic policymaking are discussed
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