Tackling inflation in Nigeria: Monetary or fiscal policy? An empirical assessment of the effectiveness of the simultaneous implementation of the policies

  • Ibrahim Abdulhami Danlami Department of Social Science and Administration, School of Continuing Education, Bayero University, Kano, Nigeria
  • Mohamad Helmi Hidthiir School of Economics Finance and Banking, Universiti Utara Malaysia
  • Sallahuddin Hassan School of Economics Finance and Banking, Universiti Utara Malaysia


The study is aimed at empirically assessing between monetary policy and fiscal policy, the most effective in combating and tackling inflation in Nigeria, especially when implemented simultaneously – the effect of the concurrent implementation of the two policies on inflation. The variables of the policies are based on market information, money market equilibrium (LM Curve) for monetary policy, and product market equilibrium (IS Curve) for fiscal policy. The research makes use of the Autoregressive Distributed Lag Model (ARDL). Data for Nigerian was used from 1970 – 2016. The findings show that monetary and fiscal policies can be implemented concurrently as monetary policy is the best for a short-run solution during the fiscal policy for a long-run solution. The findings of the study are based on Nigerian data utilized for the period 1970 – 2016 and the method of data analysis adopted – ARDL, as well as variables selection based on the general equilibrium of money and product market. The findings of the study clearly show that monetary and fiscal policies can be used simultaneously to tackle inflation in Nigeria successfully, being effective in combating inflation in different periods (short-run or long-run). The study attempted to harmonize the incompatible theories and their policies to see whether the policies can be utilized concurrently since the policies are aimed at effecting price stability. The research’s findings confirm the feasibility of implementing the two policies concurrently and their effects to be felt or realized in different periods – short-runs and long-runs.


Alavi, S. E., Moshiri, S., & Sattarifar, M. (2016). An analysis of the efficiency of the monetary and fiscal policies in Iran economy using IS–MP-AS model. Procedia Economics and Finance, 36, 522-531.
Albonico, A., & Rossi, L. (2017). Inflation bias and markup shocks in a LAMP model with strategic interaction of monetary and fiscal policy. Journal of Macroeconomics, 52, 39-55.
Anwar, S. & Islam, I. (2011). Should developing countries target low, single-digit inflation to promote growth and employment? International Labour Organisation, Employment Working Papers No. 87, International Labour Office, Geneva 22.
Babalola, O. O, Danladi, J. D., Akomolafe, K. J. & Ajiboye, O. P. (2015). Inflation, Interest Rates and Economic Growth in Nigeria. European Journal of Business and Management, 7(30), 91 – 102.
Bianchi, F., & Ilut, C. (2017). Monetary/fiscal policy mix and agents' beliefs. Review of Economic Dynamics, 26, 113-139.
Cavalcanti, M. A., Vereda, L., Doctors, R. D. B., Lima, F. C., & Maynard, L. (2018). The macroeconomic effects of monetary policy shocks under fiscal rules constrained by public debt sustainability. Economic Modelling. (In press).
Cevik, E. I., Dibooglu, S., & Kutan, A. M. (2014). Monetary and fiscal policy interactions: Evidence from emerging European economies. Journal of Comparative Economics, 42(4), 1079-1091.
Da Silva, C. G., & Vieira, F. V. (2017). Monetary and fiscal policy in advanced and developing countries: An analysis before and after the financial crisis. The Quarterly Review of Economics and Finance, 63, 13-20.
Danlami, I. A. (2020). Revisiting the West African Commonwealth Countries’ exchange rate pass- through to inflation. Academic Journal of Economic Studies, 6(1), 70 – 77.
Danlami, I. A., Hassan, S. & Hidthiir, M. H. (2020). Assessing the asymmetry of the exchange rate pass-through to inflation in West African Commonwealth Countries. Academic Journal of Economic Studies, 6(1), 93 – 109.
Danlami, I. A., Hidthiir, M. H. & Hassan, S. (2017). Dynamics of inflation in developing economies: A quest for conceptual framework. IOSR Journal of Humanities and Social Science, 22(10), 53 – 59.
Hartmann, M., Herwartz, H. & Ulm, M. (2017). A comparative assessment of alternative ex-ante measures of inflation uncertainty. International Journal of Forecasting. 33(1), 76 – 89.
Jawadi, F., Mallick, S. K., & Sousa, R. M. (2016). Fiscal and monetary policies in the BRICS: A panel VAR approach. Economic Modelling, 58, 535-542.
Jhingan, M. L. (2011). Monetary Economics, 7th Ed. Vrinda Publications (P) Ltd., Delhi.
Kandil, M. (2015). Monetary shifts and co-movements in spending, growth and inflation: Evidence from developing and advanced countries. Borsa _Istanbul Review 15(2), 76 - 92.
Keynes, J. M. (1936). The General Theory of Employment, Interest and Money, Macmillan, New York.
Kliem, M., Kriwoluzky, A., & Sarferaz, S. (2016). Monetary-fiscal policy interaction and fiscal inflation: A tale of three countries. European Economic Review, 88, 158-184.
Lawal, A. I., Somoye, R. O., Babajide, A. A., & Nwanji, T. I. (2018). The effect of fiscal and monetary policies interaction on stock market performance: Evidence from Nigeria. Future Business Journal, 4(1), 16-33.
Phiri, A. (2012). Threshold effects and inflation persistence in South Africa, Journal of Financial Economic Policy, 4(3) 247 – 269.
Risso, W. A. & Sanchez-Carrera E. J. (2009). Inflation and Mexican economic growth: long-run relation and threshold effects. Journal of Financial Economic Policy 1(3) 246 – 263.
Wang, Y., Chen, C. R., Chen, L. & Huang, Y. S. (2016). Overinvestment, inflation uncertainty, and managerial overconfidence: Firm-level analysis of Chinese corporations. The North American Journal of Economics and Finance 38 (2016), 54–69.
World Development Indicators (WDI) (2018). www.worldbank.org/data
How to Cite
DANLAMI, Ibrahim Abdulhami; HIDTHIIR, Mohamad Helmi; HASSAN, Sallahuddin. Tackling inflation in Nigeria: Monetary or fiscal policy? An empirical assessment of the effectiveness of the simultaneous implementation of the policies. Global Business Management Review, [S.l.], v. 12, n. 1, p. 26-45, june 2020. ISSN 2600-8416. Available at: <http://e-journal.uum.edu.my/index.php/gbmr/article/view/10731>. Date accessed: 13 aug. 2020.