Effect of Fiscal and Monetary Policies on the Economy of Nigeria

This study investigated the impact of fiscal and monetary policies on the Nigerian economy from 1981 to 2018. Time series data were collected from the Central Bank of Nigeria (CBN), the International Monetary Fund (IMF) and the World Bank. Multiple linear regression model comprising the dependent variable, real gross domestic product; fiscal variables (i.e., Government tax revenue and government expenditure) and monetary variables (i.e., monetary policy rate and broad money supply) was estimated. The study revealed that monetary policy rate and government expenditure impacted positively on the real GDP while government tax revenue and money supply impacted negatively on real GDP. Monetary policy instruments were not significant while fiscal police instruments were statistically significant in the long run in influencing the Nigerian economy. Monetary and fiscal policies measures however, jointly impacted significantly on the economy of Nigeria in the long-run. The study recommends harmonization between the fiscal and monetary policies by the monetary and fiscal authorities, with emphasis on channelling resources to where they are most needed. It further recommends that, Central Bank of Nigeria should operate moderate monetary policy rate which would force the banks to maintain affordable rate of interest on lending to increase borrowings for investment activities required to spur macroeconomic performance.