Asymmetric effects of monetary policy shocks on output growth in Nigeria: Evidence from nonlinear ARDL and Hatemi‐J causality tests

• Published date: 01 May 2022
• Author: Gideon G. Goshit,Gylych Jelilov,Paul Terhemba Iorember,Bilal Celik,Onyinye Maria Davd‐Wayas
• Date: 01 May 2022
• DOI: http://doi.org/10.1002/pa.2449

ACADEMIC PAPER

Asymmetric effects of monetary policy shocks on output

growth in Nigeria: Evidence from nonlinear ARDL and

Hatemi-J causality tests

Gideon G. Goshit

1

| Gylych Jelilov

2

| Paul Terhemba Iorember

1,3

|

Bilal Celik

2

| Onyinye Maria Davd-Wayas

4

1

Department of Economics, University of Jos,

Jos, Nigeria

2

Department of Economics, Faculty of Social

Sciences, Nile University of Nigeria, Abuja,

Nigeria

3

Faculty of Social Sciences, Nile University of

Nigeria, Abuja, Nigeria

4

Department of Economics, University of

Nigeria Nsukka, Abuja, Nigeria

Correspondence

Paul Terhemba Iorember, Department of

Economics, University of Jos, Jos, Nigeria.

Email: piorember1990@gmail.com

Given the importance of output growth in Nigeria and the need for monetary policy

decisions to be guided by the knowledge of the asymmetric effects of positive and

negative monetary policy shocks, this study investigates the asymmetric effects of

monetary policy shocks on output growth in Nigeria using quarterly data from

1981Q1 to 2018Q4. The study employs the recently developed Lee and Strazicich

unit root test with structural breaks, Nonlinear ARDL, and the Hatemi-J causality

tests. The result reveals the presence of long-run and short-run asymmetries in the

effect of monetary policy shocks on output growth in Nigeria. The results of the

long-run effect show that both positive and negative monetary policy rate shocks

have positive, elastic, and statistically significant effect on output growth. For the

short-run, the results indicate that the effect of negative monetary policy shocks

dominate the effects of positive monetary policy rate shocks, while the effect of pos-

itive money supply shocks dominates the effect of negative money supply shocks.

Furthermore, the study finds evidence in support of the expansionary monetary pol-

icy in the long-run. Hence, the recommendations for expansionary monetary policy

decision to enhance output growth.

JEL CLASSIFICATION

E52; E58; E61

1|INTRODUCTION

Monetary policy has been generally regarded as the key driver of eco-

nomic activities in both developed and developing countries. It acts as a

catalyst for economic growth and development through policy adjust-

ments which tends to influence general price levels aggregate demand,

and output growth. For most economies (developed and developing), the

objectives of monetary policy has always being price stability, mainte-

nance of balance of payments equilibrium, promotion of employment,

output growth, and sustainable development (Adediran, Mathew,

Olopade, & Adegboye, 2017). In achieving these objectives, the Central

Bank or Federal Reserves in the case of United States uses monetary pol-

icytoolssuchasinterestrate(MonetarypolicyrateinthecaseofNige-

ria), money supply, liquidity ratios among others. Monetary policy

adjustments in terms of interest rates and money supply influence con-

sumers spending, investment decisions, and consequently, aggregate

demand. Similarly, monetary policy decisions influence expectations

about the future direction of economic activity and inflation, thus affect-

ing the prices of goods and services, and exchange rates. To this effect,

monetary policy ensures that money supply and interest rate/monetary

policy rate (hereafter refers to as monetary policy rate [MPR]) are at

levels consistent with the growth target of real income, such that non-

inflationary growth is ensured (Alade, 2015).

Monetary policy is either expansionary or contractionary. It is

expansionary when it aims at reducing the rate of interest in order to

encourage investment borrowing and boost economic activities, and

contractionary when the aim is to raise interest rate to stabilize infla-

tion and achieve non-inflationary growth. According Leahy (1993),

Received: 8 August 2020 Revised: 26 August 2020 Accepted: 27 August 2020

DOI: 10.1002/pa.2449

J Public Affairs. 2022;22:e2449. wileyonlinelibrary.com/journal/pa © 2020 John Wiley & Sons Ltd 1of11

https://doi.org/10.1002/pa.2449