The fiscal and monetary conducts in Nigeria: An interaction with the balance of payments

• Main Author: Olajide, Raji Jimoh
• Format: Thesis
• Language: English; English
• Published: 2013
• Subjects: HJ Public Finance
• Online Access: https://etd.uum.edu.my/5300/1/s93181.pdf; https://etd.uum.edu.my/5300/2/s93181_abstract.pdf; https://etd.uum.edu.my/5300/
• Institution: Universiti Utara Malaysia

This study examines the fiscal and monetary conducts in Nigeria and their interaction with the balance of payments for the period 1970-2010. It examines how the government adjusts its desired level of nominal expenditure and income from taxes to variations in price level and how fast such adjustments are. Also, the means by which the Nigerian economy absorbs the exchange market pressure (EMP) are determined. Descriptive analysis, three-stage least squares (3SLS), vector error correction model (VECM), autoregressive distributed lag (ARDL) and dynamic ordinary least squares (DOLS) are employed. Evidence from the descriptive analysis suggests that deficit financing mostly through the central bank credit becomes the standard fiscal policy with the implication of increased money supply, rising inflation and balance of payment deterioration. Results from 3SLS show that nominal government expenditure and revenue adjust positively to inflation rate and income level, and government expenditure quickly adjusts while its revenue lags behind. Evidence from VECM reveals that in the long-run and short-run fiscal deficit, price, and private sector credit have significant impacts on money supply. Granger causality results indicate that in the short-run, unidirectional causality runs from money supply to inflation; and from government deficit to price while in the long-run, bidirectional causality runs between money supply and price. Also the DOLS results reveal that domestic credit has a significant negative impact on EMP and that external imbalances are absorbed more by depleting foreign reserves than exchange rate depreciation. These results are capable of providing useful information to policy makers to make useful policies, and to monetary authorities to abide by prudent fiscal operations without relying on the banking system for deficit financing. Generally, the probable policy recommendation is the designation of the appropriate way of achieving credible fiscal behaviour, and the application of credit restriction rules to curtail credit from the banking system for deficit financing