The Saint-Louis Equation Rebirth: Re-Accessing Fiscal and Monetary Policies Mix in Nigeria
The Saint-Louis Equation Rebirth: Re-Accessing Fiscal and Monetary Policies Mix in Nigeria

Summary/Abstract: This study restates the Saint-Louis equation to reinvestigate the relative effectiveness of fiscal and monetary policies on the Nigerian economy. This study used annual data series, from 1981 to 2015. The unit root test conducted revealed that each of the variables has stationarity at first difference. The rejection of null hypothesis on the ARDL Bound testing confirms a level relationship among the variables. The Autoregressive Distributed Lag (ARDL) technique is then used to examine the short-run and long-run relationship among the chosen variables. Also, the ARDL parameter estimates are used to compute the impulse response function in order to shed light on fiscal-monetary impacts’ puzzle in the existing literature. The impulse response function (IRF) shows that, GDP responses to fiscal and monetary policy shocks are both positive and negative. Ultimately, the IRF allows us to find out that the very long-run responses of GDP to fiscal and monetary policies shocks are negative and positive. In conclusion, we found out that monetary policy is more effective than the fiscal policy in Nigeria. Given this, we suggest that government and policymakers should simultaneously apply both fiscal and monetary policies, such that their temporal and cumulative effect on the economy becomes positive.

• Details
• Contents