It intends to examine the impact of inflation targeting on economic growth in nigeria, within the period. Abdullahi 2 it is widely believed that price stability promote longterm economic growth, whereas high inflation is inimical to growth. Inflation volatility is measured by conditional variance generated by fitting an empirical generalized autoregressive conditional hetroskedasticity garch model to a seasonally adjusted annualized quarterly consumer price inflation for the period 1960q120q3. Inflation targeting an overview sciencedirect topics. Pdf is nigeria ready for inflation targeting semantic.
Effectiveness of monetary policy on inflation targeting in. The study employed descriptive approach to the study with data sourced from the central bank of nigeria statistical bulletin of various issues. Understanding the predictors of consumer sentiments. Simply, inflation targeting encompasses a monetary policy framework in which the central bank sets an explicit target for future inflation usually low inflation rate and work towards. Average inflation targeting and interestrate smoothing. The comparison was done to determine if the reserve bank was on the right track in adopting inflation. Inflation targeting as a possible monetary framework for nigeria. New cbn study discredits inflation targeting model for. This work seeks to explore the applicability of inflation targeting in the nigerian economy based on time series data from 1990q1 to 2014q4. There are three prerequisites for inflation targeting. Inflation targeting is a monetary policy strategy in which central bank estimates and makes public a target inflation rate and then, attempts to steer actual inflation towards the target through the use of other key macroeconomic.
Results showed that inflation in nigeria is impassive to monetary transmission. Over the years, nigeria has adopted different monetary policy regimes with limited or no success. Engle granger approach to cointegration was adopted and the results showed that implementation of monetary policy function was effectively done in order to achieve price stability. This paper evaluates whether nigeria is ready to adopt inflation targeting it, a monetary policy framework that several emerging markets have adopted over the last one decade. Inflation targeting has no significant impact on the economic growth in nigeria. The incessant increase in interest rates, exchange rates, money supply and domestic credit have all accumulated, leading to persistent inflation in nigeria. Inflation targeting and economic growth nexus in nigeria. European journal of accounting auditing and finance. This paper evaluates whether nigeria is ready to adopt inflation targeting it, a monetary policy. Inflation, real exchange rate shocks, passthrough, real profits, real broad money supply, inflation persistence, nigeria.
But recent policy indication shows that the central bank of nigeria cbn may have softpedaled in the pursuit of fullfledged inflation targeting for the country. The discussion is conducted income countries from the perspective of middle. Inflation targeting monetary policy rule in nigeria. Various advanced economies including united states, canada and australia have been using inflation targeting as a strategy in their monetary policy framework.
The study suggests that a more flexible inflation rate, increased money supply, access to credit and a modest but upward adjustment to capital and recurrent expenditure have. Pdf inflation targeting in developing countries and its. Threshold effect of inflation on economic growth in nigeria sani bawa 1 and ismaila s. Shehu usman rano aliyu1 and abwaku englama2 abstract this paper evaluates whether nigeria is ready to adopt inflation targeting it, a monetary policy framework that several emerging markets have adopted over the last one decade. Kumo is country economist, at the african development bank, south africa regional office, pretoria. Proposed inflation targeting or mistargeting in nigeria. Inflation targeting it has become the monetary policy framework of choice since its adoption by the reserve bank of new zealand in 1990. This page provides nigeria inflation rate actual values, historical data, forecast. Monetary policy transmission and industrial sector growth. Since inception, the cbn has used two frameworks for the implementation of its monetary policy namely. Working paper 216 inflation targeting monetary policy. Towards inflation targeting framework for monetary policy in nigeria. Inflation targeting has been successful in emerging markets in emerging markets, it appears to have been associated with lower inflation, lower inflation expectations and lower inflation. Inflation targeting as a monetary policy in nigeria.
Inflation targeting framework for monetary policy in nigeria. This groundbreaking study, in an effort to do this, examines inflation targeting as a possible monetary framework for nigeria, using time series data and with the aid of granger causality test and impulse response functions. Nigeria s inflation has been higher than the average for african and subsaharan countries for years now, and even exceeded 16 percent in 2017 and a real, significant decrease is nowhere in. This paper utilized a quarterly time series data for. A new report by the monetary policy department of the central bank of nigeria, cbn, has indicated that a fullfledged inflation targeting framework may not be very. We study the welfare implication of average inflation targeting as a simple interestrate rule, in which the monetary authority adjusts its shortterm policy rate in response to the output gap as well as average inflation deviation from its target instead of reacting to the contemporaneous inflation rate as. Scope of the study this project covers a period of 21 years, that is from 1980 to 2011. Inflation targeting monetary policy, inflation volatility and economic growth in south africa wolassa l kumo1 1 wolassa l. This paper investigates the impact of inflation targeting monetary policy and inflation volatility on economic growth in south africa. T his is because such a framework is useful in determining th e path of monetary policy.
The study examined inflation targeting economic growth nexus in nigeria, with the aim of imbibing the useful lessons and avoiding the pitfalls from crosscountry experiences. Threshold effect of inflation on economic growth in nigeria. Inflation targeting monetary policy, inflation volatility. Furthermore, this study further dete rmines the directional flow of the causal r elationship among these variables a nd suggests better policy. The conduct of monetary policy in nigeria and all activities of the central bank of ni geria relate. The research was based on the period prior to inflation targeting and the period of inflation targeting.
Inflation targeting, economic growth, trends, nigeria 1 introduction inflation targeting was initially adopted by new zealand in 1990 and the features and norms within the inflation targeting regime have been so powerful that some central banks of the. These ranged from exchange rate targeting, direct monetary. This implies that inflation in other countries are imported to the country through high demand import of goods and service by many nigerians. Integrated inflation targeting iii abstract this book provides a thorough assessment of recent experiences with inflation targeting it, the challenges it has faced since the global financial crisis, and ways in which these challenges have been, or should be, addressed. Inflation targeting with dynamic time series modelling the nigerian case olanrewaju i. As of 2008, the international monetary fund classified 31 central banks as inflation targeters. Regarding achieving price stability, bernanke, laubach, mishkin, and posen 1999 emphasize that an inflation targeting country may not wring inflation out of their economies without laying itself open to costs in lost output and rising unemployment. Yemitan abstract in recent times, inflation figures used by policy makers and investors are usually at lag one i. Inflation targeting framework for monetary policy in.
Possible determinants and remedies to tackle it in nigeria. Therefore, the paper recommends that government should use exchange rate as inflation targeting instrument in nigeria to reduce the level of imported inflation for economic growth in nigeria. Oconnell1 january 4, 2010 in an inflation targeting it framework, the central bank commits to a publicly announced numerical range for inflation, subordinates other intermediate targets, and institutionalizes its commitment through a. This debate once more threw up a need to reexamine the determinants of inflation in. Pdf understanding the predictors of consumer sentiments. Inflation targeting has been considered in the literature as most suitable approach for effectively anchoring inflation expectations sivak, 20. At this instant, it is pertinent to look for another nominal anchor to keep inflation in check.
Inflation targeting is a monetary policy regime, which is characterized by public announcement of official target ranges or quantitative targets for price level increases and by explicit acknowledgement that low inflation is the most crucial longrun objective of the monetary authorities. Pdf inflation targeting monetary policy rule in nigeria. Imperial journal of interdisciplinary research ijir vol2, issue6, 2016 issn. Inflation targeting as a possible monetary framework for. A proposed programme for implementation by the central bank of nigeria 3 provide an input into addressing these issues, especially as regards resolving the technical, administrative and practical problems for a transition to inflation targeting as a framework for monetary policy in nigeria. Pros and cons of inflation targeting gill hammond deputy director, ccbs, bank of england. Inflation targeting is a central banking policy that revolves around meeting preset, publicly displayed targets for the annual rate of inflation. Even the us federal reserve and the swiss national bank, which. Inflation targeting is a monetary policy regime, characterized by public announcement of official target ranges or quantitative targets for price level increases and by explicit acknowledgement that low inflation is the most crucial longrun objective of the monetary authorities. Some researchers argued that, monetary policy is an effective policy measure to achieve inflation targeting, these researchers include gbadebo and muhammed 2015, herberger 1978, mccallum and nelson 2010, graude and polan 2005. Inflation targeting and exchange rate volatility in emerging markets. Pdf inflation targeting monetary policy stance of nigeria was examined using taylor policy rule. Introduction his paper seeks to look at the challenges of moving to an inflation targeting t it regime, specifically in nigeria s emerging market environment.
Pdf inflation targeting as a monetary policy framework. Integrated inflation targeting another perspective from. Inflation targeting monetary policy stance of nigeria was examined using taylor policy rule. Previous study was also consulted to enrich the work. Towards inflation targeting framework for monetary policy. This research was conducted to evaluate the adoption of inflation targeting in south africa as a strategy to maintain price stability. Pdf budget deficit financing and inflation targeting in. One of the issues facing nigeria today is the choice among two nominal anchors. Central bank of nigeria monetary targeting the banks current monetary policy framework is monetary targeting with. Base reserve money as operating target broad money supply m2 as intermediate target inflation as the ultimate or final target both the operating target and intermediate target are employed in determining the optimum level of.
This paper attempted to critically analyze the basic issues, problems and prospects germane to the adoption of inflation targeting as a monetary policy framework for nigeria. Lessons for policy are drawn from the theoretical and. Inflation targeting as a possible monetary framework for nigeria by. Journal of economics and sustainable development iiste. Lessons for inflation targeting prospects in nigeria. Generally, inflation targeting is a policy in which an estimated inflation target is made public and deliberately pursued.
41 816 1012 995 1448 1200 763 910 1281 137 931 1211 1342 1175 688 159 1501 60 920 422 790 1030 1219 1147 854 848 1277 1121 577 44 1285 134 1034 712 145 1336 1252 984 170