Fiscal Policy and External Shocks in Nigeria
Abstract
The study assessed the effects of external shocks on fiscal policy in Nigeria. Vector auto-regression VAR estimating technique is adopted to achieve the set objectives of the study. The VAR model comprises of the following variables GDP, oil output, oil price, government revenue, government expenditure, external reserve, exchange rate, fiscal balance, and non-oil export. These variables represent the external shocks, the growth variables, fiscal variables and some other macroeconomic variables. The VAR results show that oil price and non-oil export are the most important external shocks affecting fiscal policy in Nigeria. It was also discovered that public debt shock has no significant impact on government expenditure. In addition, external reserve and exchange rate shocks also have a significant impact on fiscal policy. Finally, government expenditure shock failed to have a significant impact on the GDP. The implication of these results is that the effectiveness of fiscal policy in achieving macroeconomic objectives in Nigeria depends on these identified shocks.
Downloads
References
Ball, L. (2000). Policy rules for open economies. In J. B. Taylor (Ed.), Monetary policy rules, pp. 127.156. Chicago: University of Chicago Press for NBER.
Becklemans, L. (2005). Credit and monetary policy: Australian SVAR. Reserve Bank of Australia Research Discussion Paper Series, 1, 2-9.
Capistran, C. & Caudra, G. (2011). Policy response to external shocks: Lesson from the crisis. Documento-de Investigation Working paper 2011-14.
Central Bank of Nigeria (CBN) Statistical Bulletin (2016). Edition.
Central Bank of Nigeria (CBN). (2009). Statistical bulletin golden Jubilee Edition. Abuja: CBN.
Clements, M. P., Leign, H. & Flores, D. F. (2009). Forecasting in cointegrated systems. Journal of Applied Econometrics, 10(5), 127–146.
Clements, M. P. & Hendry, D. F. (1995). Forecasting in cointegrated systems. Journal of Applied Econometrics, 10(5), 127–146.
Easterly, W. & Rebelo, S. (1993). Fiscal policy and economic growth: An empirical investigation, Journal of Monetary Economics, 32, 417-458.
Elbourne, A. (2007). The UK housing market and the monetary policy transmission mechanism: An SVAR approach. Journal of Housing Economics, 17(2008), 65-87.
Fève, P. & Guay, A. (2006). The response of hour to technology shock: SVAR approach. Money Credit bank, 5(1), 958-1103.
Gelb, A. H. (1988). Oil windfalls: blessing or curse, Oxford University Press (for World Bank), Oxford.
Gosse, M. T. & Guillamin, L. Y. (2012). Will natural gas prices decouple from oil prices across the pond? IMF working paper, WP/11/143.
Gylfason, T. (2001). Natural resources, education, and economic development. European Economic Review, 45, 847–59.
Ibrahim, H. M. & Amin, M. R. (2005). Exchange rate, monetary policy and manufacturing output in Malaysia. Journal of Economic Cooperation, 26(3), 103-130.
Kinnunen, J., Lofgren, H., Victor Sulla. & Dino Merotto. (2013). External shocks, fiscal policy and income distribution: alternative scenarios for Moldova. World Bank Policy Research Working Paper 6365.
Lucas, R. (1988). An equilibrium model of the business cycle. Journal of Political Economy, 83, 1113-1144.
Mahmud, H. (2009). Oil price shocks and monetary policy aggregates in Nigeria: A structural VAR approach. Munich Personal RePEc Archive, 45-56.
Mordi, C. N. O. & Adebiyi, M. A. (2010). The Asymmetric effects of oil price shocks on output and prices in Nigeria using a structural VAR model. Central Bank of Nigeria Economic and Financial Review, 48(1), 1-32.
Ngalawa, H. & Viegi, N. (2011). Dynamic effects of monetary policy shocks in Malawi. South African Journal of Economics, 79(3), 244-250.
Obinyeluaku, M. & Viegi, N. (2012). Fiscal policy for managing oil revenues in Nigeria. Economic Research of South Africa. Working paper No. 2.
Obinyeluaku, M. I. (2009). Testing the fiscal theory of price level in Nigeriaâ€, University of KwaZulu-Natal Discussion Papers Series, No. 58.
Olasunkanmi, O. I. & Babatunde, O. A. (2013). Empirical analysis shocks and current account dynamics in Nigeria. African Research Review, 7(1).
Olomola, P. (2006). Oil wealth and economic growth in African oil exporting countries. A.E.R.G Research Paper, 170, 23-45.
Papademous, L. (2008). The contribution of monetary policy to economic growth. European Central bank Conference Paper.
Peersman, G. & Smet, F. (2002). The industry effects of monetary policy in the Euro-Area. European Bank Working Paper, 65, 34-56.
Sidrauski, M. (2003). Rational choice and patterns of growth in a monetary economy. American Economic Review, 57(2), 534–544.
Sims, C. A. (1980). Are forecasting models usable for policy analysis? Quarterly review of Federal Reserve Bank of Minneapolis, 10(1), 2-16.
Tobin, J. (1965). Money and economic growth, Econometrica, 33, 671-684.
Usenobong, F. A. & Johnson, A. A. (2015). Macroeconomic effects of fiscal policy shock in Nigeria: A SVAR approach. International Journal of Business and Economics Research, 4(3), 109-120.
Uhlig, H. (2005). What are the effects of monetary policy on output? Results from an agnostic identification procedure. Journal of Monetary Economics, 52(6), 381–419.
Vonnak, B. (2005). Estimating the effects of Hungarian monetary policy within a structural VAR framework. Magyar Nemzeti Bank Working Paper Series, 1, 1-37.
World Bank. (2012). A review of monetary policy administration in Africa. World Bank Policy Research Paper, No. 2225.
Copyright (c) 2019 Patrick Ologbenla
This work is licensed under a Creative Commons Attribution 4.0 International License.
Author (s) should affirm that the material has not been published previously. It has not been submitted and it is not under consideration by any other journal. At the same time author (s) need to execute a publication permission agreement to assume the responsibility of the submitted content and any omissions and errors therein. After submission of a revised paper in the light of suggestions of the reviewers, editorial team edits and formats manuscripts to bring uniformity and standardization in published material.
This work will be licensed under Creative Commons Attribution 4.0 International (CC BY 4.0) and under condition of the license, users are free to read, copy, remix, transform, redistribute, download, print, search or link to the full texts of articles and even build upon their work as long as they credit the author for the original work. Moreover, as per journal policy author (s) hold and retain copyrights without any restrictions.