Price stickiness-income inequality nexus, impact on monetary policy in Nigeria
DOI:
https://doi.org/10.37899/mjde.v1i3.86Keywords:
Price Stickiness, Income Inequality, Monetary Policy, Economic StabilityAbstract
This study examines the impact of price stickiness-income inequality nexus, om monetary policy in Nigeria from 1984 to 2023. The model formulated depicts monetary policy rate (MPR) as the dependent variable while gross domestic product (GDP), nominal exchange rate (NER), inflation (INF), interest rate (INT), consumer price index (CPI) as a measure of price stickiness and income inequality (IND) are independent variables. These data were sourced and extracted from CBN Statistical Bulletin. The study employed the OLS, Cochrane Orcutt and the chain rule to find the transmission mechanism. The ADF test reveals that the variables were all stationary at level. The study recommends that Monetary authorities are also encouraged to decrease the MPR. This will allow the banks to have enough cash to give to industries, the manufacturing sector and especially the small and medium enterprise. This will thus lead to creating of jobs to will lead to a balance or reduction in the income inequality It decreases interest rate and therefore encourages lending and investment and by extension, increase in output. Monetary authorities must however be wary of the tendency of an increase in money supply to lead primarily to inflation. Monetary authorities must ensure viable productive potentials in the economy respond positively to the rise in money supply.
References
Abang, S. O. (2023). Economic policies, income distribution and inflation in Nigeria (Doctoral dissertation, University of Calabar). Department of Economics, Post Graduate School, University of Calabar.
Akinlo, A. E., & Apanisile, O. T. (2019). Monetary policy shocks and effectiveness of channels of transmission in Nigeria: A dynamic stochastic general equilibrium approach. Global Business Review, 20(2), 1–23.
Apanisile, O. T., & Osinubi, T. T. (2020). Financial development and the effectiveness of monetary policy channels in Nigeria: A DSGE approach. Journal of African Business, 21(2), 193–214. https://doi.org/10.1080/15228916.2019.1625021
Balke, N. S., & Wynne, M. A. (2007). The relative price effects of monetary shocks. Journal of Macroeconomics, 29(1), 19–36. https://doi.org/10.1016/j.jmacro.2005.04.002
Beraja, M., Fuster, A., Hurst, E., & Vavra, J. (2019). Regional heterogeneity and monetary policy. Quarterly Journal of Economics, 134(1), 109–183. https://doi.org/10.1093/qje/qjy021
Bils, M., Klenow, P. J., & Kryvtsov, O. (2003). Sticky prices and monetary policy shocks. Federal Reserve Bank of Minneapolis Quarterly Review, 27(1), 2–9. https://doi.org/10.21034/qr.2711
Boivin, J., Giannoni, M. P., & Mihov, I. (2009). Sticky prices and monetary policy: Evidence from disaggregated US data. American Economic Review, 99(1), 350–384. https://doi.org/10.1257/aer.99.1.350
Burdett, K., & Mortensen, D. T. (1998). Wage differentials, employer size, and unemployment. International economic review, 257-273. https://doi.org/10.2307/2527292
Calvo, G. A. (1983). Staggered prices in a utility-maximizing framework. Journal of Monetary Economics, 12(3), 383–398. https://doi.org/10.1016/0304-3932(83)90060-0
Chugunov, I., Pasichnyi, M., Koroviy, V., Kaneva, T., & Nikitishin, A. (2021). Fiscal and monetary policy of economic development. European Journal of Sustainable Development, 10(1), 42-42. https://doi.org/10.14207/ejsd.2021.v10n1p42
Clarida, R., Galí, J., & Gertler, M. (1999). The science of monetary policy: A New Keynesian perspective. Journal of Economic Literature, 37(4), 1661–1707. https://doi.org/10.1257/jel.37.4.1661
Coibion, O., Gorodnichenko, Y., Kueng, L., & Silvia, J. (2017). Innocent bystanders? Monetary policy and inequality. Journal of Monetary Economics, 88, 70–89. https://doi.org/10.1016/j.jmoneco.2017.05.005
Cravino, J., Lan, T., & Levchenko, A. A. (2020). Price stickiness along the income distribution and the effects of monetary policy. Journal of Monetary Economics, 110, 19-32.
Diamond, P. (1971). A model of price adjustment. Journal of Economic Theory, 3(2), 156–168. https://doi.org/10.1016/0022-0531(71)90010-0
Epstein¹, G. (2007). Central banks as agents of economic development. Institutional change and economic development, 1, 95.
Ihimoyan, M. K., Enyejo, J. O., & Ali, E. O. (2022). Monetary Policy and Inflation Dynamics in Nigeria, Evaluating the Role of Interest Rates and Fiscal Coordination for Economic Stability. International Journal of Scientific Research in Science and Technology. Online ISSN.
Ireland, P. N. (2005). The monetary transmission. Federal Reserve Bank of Boston Working Paper Series, No. 05-1. https://doi.org/10.2139/ssrn.687231
Levchenko, A., Cravino, J., & Lan, T. (2018). Price stickiness along the income distribution and the effects of monetary policy (No. 12967). CEPR Discussion Papers. https://doi.org/10.1016/j.jmoneco.2018.12.001
Liu, L., & Zhang, W. (2010). A New Keynesian model for analyzing monetary policy in Mainland China. Journal of Asian Economics, 21(6), 540–551. https://doi.org/10.1016/j.asieco.2010.08.001
Mordi, C. N. O., Adebiyi, M. A., Adenuga, A. O., Abeng, M. O., Adeboye, A. A., Adamgbe, E. T., & et al. (2013). Dynamic stochastic general equilibrium model for monetary policy analysis in Nigeria. Research Department, Central Bank of Nigeria.
Nakamura, E., & Steinsson, J. (2008). Five facts about prices: A reevaluation of menu cost models. Quarterly Journal of Economics, 123(4), 1415–1464. https://doi.org/10.1162/qjec.2008.123.4.1415
Obafemi, F. N., & Ifere, E. O. (2015). Monetary policy transmission mechanism in Nigeria: A FAVAR approach. International Journal of Economics and Finance, 7(8), 93-103. https://doi.org/10.5539/ijef.v7n8p229
Ononugbo, M. C. (2012). Monetary policy in developing countries: The case of Nigeria. University of Leeds.
Oyedokun, A. I. (2020). Examining price setting behaviour in Namibia: Evidence from the manufacturing sector (Doctoral dissertation, University of Namibia).
Schmitt-Grohé, S., & Uribe, M. (2004). Optimal fiscal and monetary policy under sticky prices. Journal of economic Theory, 114(2), 198-230. https://doi.org/10.1016/S0022-0531(03)00111-X
Downloads
Published
Issue
Section
License
Copyright (c) 2024 Mustard Journal De Ecobusin
This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.
This journal provides direct open access to it's content on the principle that research is freely available to the public supporting a greater global exchange of knowledge. All articles published by Open Access will soon and forever be free for everyone to read and download. The license options defined for this journal are Creative Commons Attribution-ShareAlike (CC BY-SA)
