Determining the Degree of Fiscal Dominance and its Implication on the Conduct of Monetary Policy in Nigeria
Beatrice Onawunreyi Omo-Ikirodah
Economics Department, University of Benin, Nigeriahttps://orcid.org/0000-0002-0012-6768
Joseph Olarewaju Afolabi
Nigerian Institute of Social and Economic ResearchRésumé
This study determines the degree of fiscal dominance and its implication on the conduct of monetary policy in Nigeria. It adopts the Dynamic Ordinary Least Square (DOLS) estimation techniques and covers the periods of 1980 to 2020. The regression result shows an estimated coefficient of 0.77, which indicate a high degree of fiscal dominance in the country. In the same vein, the estimated coefficient was compared with the average value of the consumer price index and interest rate in the economy, and it was discovered that high degree of fiscal dominance corresponds with high consumer price index and interest rate in the economy. Flowing from the findings, it is concluded that there is high degree of fiscal dominance in Nigeria, and this has implication on the conduct of monetary policies in thecountry. The degree of fiscal dominance in the country is likely one of the factors responsible for high prices in the country. It was recommended that The Nigerian government should focus on widening the domestic revenue mobilization base of the country. This would include expanding the tax base, setting up appropriate mechanism to generate more revenue from fines, fees and licenses, providing a conducive environment for remittances inflow into the country. The Central bank should limit their finances of government expenditure to 10 percent of previous year’s revenue as suggested by the World Bank. They should limit their borrowings to capital project, such that such project can boast aggregate supply and normalize average prices in the economy.
Mots-clés :
fiscal policy, monetary policy, fiscal dominanceRéférences
Arby, M.F., & Hanif, M.N. (2010). Monetary and fiscal policies coordination: Pakistan’s experience. SBP Research Bulletin, 6(1), 3-13. Retrieved from https://mpra.ub.uni-muenchen.de/24160/1/MPRA_paper_24160.pdf Google Scholar
Barro, R.J. (1987). Government spending, interest rates, prices, and budget deficits in the United Kingdom, 1701–1918. Journal of Monetary Economics, 20(2), 221-247. https://doi.org/10.1016/0304-3932(87)90015-8
Crossref
Google Scholar
Belke, A., & Dreger, C. (2011). Ramifications of debt restructuring on the euro area. Intereconomics, 46(4), 188-196. https://doi.org/10.1007/s10272-011-0382-7
Crossref
Google Scholar
Bernanke, B.S. (2002). Deflation: making sure ”it” doesn’t happen here. Speech 530, Board of Governors of the Federal Reserve System (U.S.). Google Scholar
Blanchard, O. (2004). Fiscal dominance and inflation targeting: lessons from Brazil. NBER working paper series. Retrieved from http://www.nber.org
Crossref
Google Scholar
Bordo, M.D., & Siklos, P.L. (2018). Central Banks: Evolution and Innovation in Historical Perspective. In R. Edvinsson, T. Jacobson, & D. Waldenström (Eds.), Sveriges Riksbank and the History of Central Banking. Cambridge: Cambridge University Press. Google Scholar
CBN (2019). Statistical bulletin. Retrieved from www.cbn.gov.ng. Google Scholar
Cogan, J., Tobias, C., John, T., & Volker, W. (2009). New Keynesian Versus Old Keynesian Government Spending Multipliers. Journal of Economic Dynamics and Control, 34, 281-295.
Crossref
Google Scholar
De Resende, C. (2007). Cross-country estimates of the degree of fiscal dominance and central bank independence. Bank of Canada Working Paper, 36. Retrieved from http://hdl.handle.net/10419/53917 Google Scholar
Fahr, S., & Frank, S. (2010). Downward wage rigidities and optimal monetary policy in a monetary Union. The Scandinavian Journal of Economics, 112(4), 812-840. https://doi.org/10.1111/j.1467-9442.2010.01627.xF
Crossref
Google Scholar
Favero, C., & Monacelli, T. (2003). Monetary-fiscal mix and inflation performance: Evidence from the U.S.
Crossref
Google Scholar
Working Papers of IGIER (Innocenzo Gasparini Institute for Economic Research), 234, 1-28. Google Scholar
Friedman, M., & Schwartz, A.J. (1963). A Monetary History of the United States, 1867-1960. Princeton: Princeton University Press. Google Scholar
Hooley, J., Nguyen, L., Saito, M., & Shirin, N.T. (2021). Fiscal Dominance in Sub-Saharan Africa Revisited. IMF Working Paper, 17, 2-28. Retrieved from https://ssrn.com/abstract=3799609
Crossref
Google Scholar
Jácome, L.I., Matamoros-Indorf, M., Sharma, M., & Townsend, S. (2012). Central Bank Credit to the Government: What Can We Learn from International Practices? IMF Working Paper, 16.
Crossref
Google Scholar
Jalil, A., Tariq, R., & Bibi, N. (2013). Fiscal deficit and inflation: New evidences from Pakistan using a bounds testing approach. Economic Modelling, 37(1), 120-126. https:// doi.org/10.1016/j.econmod.2013.10.029
Crossref
Google Scholar
Keen, B., & Wang, Y. (2013). What is a realistic value for price adjustment costs in new keynesian models? Applied Economics Letters, 14(11), 789-793. https:// doi.org/10.1080/13504850600592739
Crossref
Google Scholar
Keynes, J.M. (1936). The General Theory of Employment, Interest and Money, London: Macmillan. Google Scholar
Kraay, A., & Serven, L. (2008). Fiscal Policy Response to the Current Financial Crisis: Issues for Developing Google Scholar
Countries. World Bank Research Brief (December). Washington, DC: World Bank. Google Scholar
Nachega, J.C. (2005). Fiscal Dominance and Inflation in the Democratic Republic of the Congo. IMF Working Paper, 221.
Crossref
Google Scholar
Ornellas, R., & Portugal, M. (2011). Fiscal and monetary interaction in Brazil. In Meeting of the Brazillian Econometric Society, 33, 1–31. Google Scholar
Romer, C., & Bernstein, J. (2009). The Job Impact of the American Recovery and Reinvestment Plan. Manuscript. Google Scholar
Sabaté, J., Harwatt, H., & Soret, S. (2016). Environmental nutrition: a new frontier for public health. American Journal of Public Health, 106, 5815–5821. https://doi. org/10.2105/AJPH.2016.303046
Crossref
Google Scholar
Sanusi, K.A., & Akinlo, A.E. (2016). Investigating fiscal dominance in Nigeria. European Journal of Sustainable Development, 8(1), 125–131. https://doi.org/10.5539/jsd.v9n1p125
Crossref
Google Scholar
Sargent, T.J., & Wallace, N. (1981). Some unpleasant monetarist arithmetic. Federal Reserve Bank of Minneapolis Quarterly Review, 5(3), 1–17. Retrieved from https:// www.minneapolisfed.org/research/qr/qr531.pdf
Crossref
Google Scholar
Sims, C.A. (1994). A simple model for study of the price level and the interaction of monetary and fiscal policy. Economic Theory, 4(3), 381–399. https://doi.org/10.1007/BF01215378
Crossref
Google Scholar
Tanner, E., & Ramos, A. (2002). Fiscal sustainability and monetary versus fiscal dominance: Evidence from Brazil, 1991-2000. IMF Working Papers, 2(5), 1-21.
Crossref
Google Scholar
Taylor, J.B. (2002). Using monetary policy rules in emerging market economies. Stabilisation and Monetary Policy, Banco de Mexico, p. 441-457. Google Scholar
Us, V. (2008), Inflation dynamics and monetary policy strategy: Some prospects for the Turkish economy. Journal of Policy Modelling, 26(8–9), 1003–1013. https://doi.org/10.1016/j.jpolmod. 2004.07.001
Crossref
Google Scholar
Economics Department, University of Benin, Nigeria
https://orcid.org/0000-0002-0012-6768
Nigerian Institute of Social and Economic Research
Licence
Ce travail est disponible sous licence Creative Commons Attribution - Pas d'Utilisation Commerciale - Pas de Modification 4.0 International.
An Author declares that his paper has not been published before (under the same or another title, or is a part of another publication) and does not infringe copyrights of other persons**. At the same time, the Author transfers to the Publisher the exclusive right to publish and to circulate this work in print in the form of a non-serial journal publication and in a form of an electronic publication.
The journal is available on Creative Common license CC-BY-NC-ND
