Ibadan Journal of the Social Sciences
Volume 13, No. 1, 2015
DOI: 10.36108/ijss/5102.31.0180

Prices and Output Response to Monetary Policy Variation in Nigeria

Samuel Orekoya

Department of Economics, University of Ibadan, Nigeria


Successful policy implementation often requires an accurate assessment of the magnitude at which the effect aof monetary policy change propagates to other sectors of the economy. For this reason, a thorough understanding of the mechanism through which monetary policy affects targeted economic variables is necessary. This study used innovation accounting in a SVAR model to establish that monetary authorities in Nigeria employed a hybrid of operating procedures and also pursued price stability and growth objectives. Employing Impulse Response Functions (IRFs) and Variance Decompositions (VDs) to examine the dynastic responses of the variables to various shocks within the S’VAR system 0n monetary data from 2000:1M03 to 2012:M12, bank interest rate and reserve money were identified as the two operating targets of the Central Bank of Nigeria (CBN). The study established that reserve money was a more effective measure of monetary policy that bank rate and also that bank lending was the monetary policy transmission channel in Nigeria, We therefore recommended that CBN should focus primarily 0n price level stability rather than combine it with output growth since achieving the former has the tendency fastering growth in output.
Keywords: Output, price level, monetary policy, monetary transmission mechanism, structural VAR, shocks, Nigeria

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