Abstract
This study employs the auto regressive distributed lag (ARDL) model to ascertain the relative effectiveness of monetary and fiscal policies in Nigeria using a quarterly time-series from 1981-2012. From our analysis, it discovered that monetary and fiscal policies both have significant positive impact income. This conforms to a priori expectation and we discovered that monetary policy effects income faster than fiscal policy. In the short run, monetary policy effects income more than fiscal policy but the reverse is the case for the long run. Total impact of fiscal policy is higher than that of monetary policy. This study supports the use of both policies to achieve change in income but this depends on the objective the authorities want to achieve.
Highlights
Sustainable economic growth and development is of no doubt, one of the most challenging development issues in the Third World countries today
The short run impact is gotten from the restricted error correction model
The impact of monetary policy on income is higher than the impact of fiscal policy on income
Summary
Sustainable economic growth and development is of no doubt, one of the most challenging development issues in the Third World countries today. The two major economic policies often used to stabilize any economy of the world are monetary and fiscal policies and their cardinal tools are money supply and government expenditure, respectively (Asogu, 1998). Monetary policy defined as the actions of a central bank that determine the size and rate of growth of the money supply, which in turn affects interest rates. Fiscal policy has to do with changing government expenditure and tax to achieve a given macroeconomic objective. There is a consensus among economists that both policies individually and collectively affect the income of a nation but the degree of relative effectiveness of these policies has been the source of controversies and debates among economists It is based on this controversies and debates that this study re-examines the relative effectiveness of fiscal and monetary policies on national income in Nigeria with the use of quarterly time series from 1981-2012. The autoregressive distributed lag (ARDL) model technique is employed to analyze the data and draw policy inferences
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