CBN Journal of Applied Statistics (JAS)
Keywords
Assets price, capital flows, impossible trinity, sterilization
Abstract
This paper assesses the monetary policy response of the Central Bank of Nigeria (CBN) to increases in capital inflows into Nigeria using monthly time series data from January 2009 to December 2017. It presents an econometric assessment of the degree to which the CBN sterilizes net foreign assets (NFA) in response to the capital flows, using Autoregressive Distributed Lag (ARDL) Bounds testing approach. The long run sterilization coefficient obtained suggests that the CBN successfully offset 95per cent of capital inflows in the period of analysis. Against the background of rising financial instability in Nigeria, the study illustrates how sterilization has not adequately tackled the major risks of capital inflows which resulted in asset price bubbles and bursts, equity capital inflows reversal, banking crisis, and currency depreciation which contributed, partly, to the economic recession in 2016. The paper argues that effective policy response to capital inflows must adequately address the major downside risks of capital inflows in the short and medium terms through some clearly defined capital flows management and macro-prudential measures.
Publication Title
CBN Journal of Applied Statistics
Issue
2
Volume
11
First Page
201
Last Page
230
Recommended Citation
Jume, Tijjani M.
(2020)
"An Assessment of the Effectiveness of Central Bank Sterilization on Capital Inflows in Nigeria,"
CBN Journal of Applied Statistics (JAS): Vol. 12:
No.
1, Article 1.
Available at:
https://dc.cbn.gov.ng/jas/vol12/iss1/1