The Coordination of Monetary and Fiscal Policy Interactions and Its Impact on the Performance of the Nigerian Economy

Abstract

Fiscal and monetary policies have been adjudged by scholars to have strong implications for economic performance of countries across the globe. This paper assesses the impact of the interaction of monetary and fiscal policy coordination on the economic performance of Nigeria. The study adopted an econometric method in analyzing data which were obtained mainly from secondary sources, especially the CBN statistical bulletins. The estimation techniques used in the study are the Auto-Regressive Distributed Lag (ARDL) model, the Granger Causality and Vector Auto-regression. The data were tested for stationarity using ADF (1979) methods. The results obtained shows that all monetary variables react strongly to changes in fiscal variables except interest rate. Inflation and external debt are negatively signed in both long run and short run, implying that an increase in both variables will have a negative effect on economic performance. Also, the coefficient of INTR and FGRRg has positive impact in the long run, meaning that an increase in both will have a positive impact on economic performance. Also, the elasticity status of our model shows that while INTR, RGDPg and INF rate and their lags had coefficient of elasticity less than one, EXDBT and FGRRg and their lags had coefficients greater than one. Thus, it could be concluded from the findings that fiscal policy measures exert greater impact on the level of economic performance in Nigeria, than monetary policy.  The study made some policy recommendations, which if implemented, could increase the level of interaction between fiscal and monetary policies and enhance their coordination for improved economic performance in the country.