CBN Journal of Applied Statistics (JAS)
Keywords
Relative price, monetary policy stance, output gap, inflation gap, and Generalised method of moments
Abstract
This study estimates a baseline Taylor Rule and an augmented Taylor Rule incorporating relative price movements (RELP) using Generalized Method of Moments (GMM) on Nigerian data. The baseline model shows weak and statistically insignificant responses of the MPR to inflation, the output gap, and crisis conditions, confirming earlier findings that inflation and output in Nigeria do not have contemporaneous effects on the MPR. By contrast, the augmented model reveals that the relative price level positively and significantly influences the policy rate, indicating that the CBN raises interest rates when domestic prices rise relative to external or bench mark prices. Across both models, the lagged MPR exhibits near-unit persistence (0.95–0.99), consistent with the CBN’s gradualist interest-rate adjustment strategy. Overall, the results show that the standard Taylor Rule does not adequately explain Nigeria’s monetary policy stance. Instead, an augmented model incorporating relative price dynamics provides a more accurate and context-appropriate representation of policy behaviour. The findings underscore the importance of price structure, external competitiveness, and sectoral shocks in shaping Nigeria’s monetary policy reaction function. They further suggest that effective inflation management in Nigeria re quires integrating structural drivers, particularly energy and food price movements, into forward-looking policy rules
Issue
1
Volume
16
First Page
113
Last Page
135
Recommended Citation
Udoh, Elijah A.; Mohammed, Ibrahim D.; Sanusi, Yakubu M.; and Oksakei, Philom ena Y.
(2025)
"Relative Price Changes and Monetary Policy Stance in Nigeria,"
CBN Journal of Applied Statistics (JAS): Vol. 16:
No.
1, Article 5.
DOI: https://doi.org/10.33429/Cjas.16125.5/6
Available at:
https://dc.cbn.gov.ng/jas/vol16/iss1/5