Monetary policy rule: A broad monetary conditions index for Nigeria

To determine the relative importance of both the domestic and external influences on monetary policy formulation, this paper constructs a broad monetary conditions index for Nigeria. It brings together the three key channels of monetary transmission, namely interest rate, exchange rate and credit channels. The result gives dominance to exchange rate channel, followed by credit channel and interest rate channel. The resultant monetary conditions index traces fairly well the policy direction of the Central Bank of Nigeria for the studied period, hence can serve as an adequate gauge of monetary policy stance of the Bank

Fiscal Policy in Nigeria: An Appraisal of the Increasing Role of Sub-National Governments

The conduct of economic policy is a shared responsibility of the three tiers of government in Nigeria with federal government having the largest share especially in the area of revenue generation, hence the role of state and local governments in the fiscal policy actions in the past are often disregarded. Analysts are, however, of the view that, in recent times, particularly with the entrenchment of democratic governance, the fiscal policy feats of sub-national government put together are becoming as important as that of federal government. This study therefore assesses the trend in the fiscal policy roles of the three tiers of government in Nigeria, to determine which is dominant; federal or state and local governments put together. The findings of the study indicate that, there is still a “centripetal” bias in the assignments of revenue powers without regard to expenditure responsibilities. The expenditure trends of the sub-national governments have surpassed that of federal government without a corresponding increase in their revenue powers, thereby makes them heavily dependent on federal government for revenue. It also finds an increasing trend in the fiscal deficit of sub-national government. The study suggests further divulgence of tax base in favour of sub-national governments or increase in their share of Federation Account as well as diversification of the nation’s revenue base so as to improve the revenue accruable to all tiers of government. Keywords: Fiscal policy, government, revenue, expenditure, budge

Nigeria’s Potential Growth and Output Gap: Application of Different Econometrics Filters

The concept of potential output and the corresponding output gap had received considerable attention by both policy makers and academic researchers, particularly in the developed countries. This is a reflection of not only its theoretical significance, but also its policy relevance. Output gap is used to model price and wage inflation, in estimating fiscal balance and the impact of structural reforms on the economy, hence an important indicator of fiscal policy trust. Most importantly, to a central banker it is critical in modelling monetary policy decision making process, as it serves as an input into central banks economic projections which forms an integral part of monetary policy decision and the setting of monetary policy rates. This paper measures the potential output and the corresponding output gap for Nigeria using Hodrick-Prescott filter, Baxter-King filter and both fixed and full length Christiano-Fitzgerald filters. The methods yielded different results, but with strong similarities in their evolution over time. According to all the methods, on the average, the economy was over heated during the early part of the sample period (2004:Q1 to 2005:Q4) but operated below capacity between 2008:Q1 and 2009:Q4. Interestingly, a fairly strong and stable relationship exists between inflation and the estimated output gaps. With this noticeable connection, using output gap to compliment expert judgement, in monetary policy decision making, would conceptually be a good decision. Keywords: Potential growth, output gap, econometric filtering, Nigeri

A Post Market Reform Analysis of Monetary Conditions Index for Nigeria

The introduction of SAP and the accompanying financial market reform in 1986, witnessed a continuous decline of emphasis on direct monetary controls by the Central Bank of Nigeria (CBN) such that the Naira is allowed to freely float while trade and exchange controls were liberalized, market based interest rate policy was introduced and mandatory credit allocation was abolished to pave way for effective implementation of a market based system whereby the use of market forces is encouraged. This led to significant changes in the monetary policy framework of the CBN. However, while the post SAP monetary policy strategies, institutional framework and arrangements as well as instruments have been adequately given research attention, the monetary conditions arising from the adoption of these different strategies, framework and instruments have been largely ignored. The study applied a bounds testing approach to cointegration to estimate the weights of the variables in the broad monetary conditions index for Nigeria for the period 1989:Q1 to 2012:Q2. The result attached a higher weight to interest rate channel, followed by exchange rate channel and then credit channel, implying that interest rate channel is more important than the exchange rate and credit channel in determining the level of output in Nigeria. The resultant monetary conditions index traces fairly well the policy direction of the Central Bank of Nigeria for the studied period, hence can serve as an adequate gauge of monetary policy stance of the CBN. Keywords: Monetary policy, monetary conditions, monetary transmission, ARDL, cointegratio

Determinants of foreign reserves in Nigeria: An autoregressive distributed lag approach

On global scale, central banks' holdings of foreign reserves have escalated sharply in recent years. World international reserves holdings have risen significantly from US$1.2 trillion in 1995 to nearly US$10.0 trillion in June 2011. Dominant among these reserves are concentrated in the hands of few countries. Ten major holders of foreign reserves are mostly from Asia. Oil exporting countries in Africa and the Middle East are not left out in this trend. Nigeria's foreign reserves rose from US$5.5 billion in 1999 to US$62.40 billion in July 2008, making Nigeria the twenty-fourth largest reserves holder in the world. This pace of reserves accumulation is occurring without regard to its diminishing marginal benefits and rising marginal costs. This study used an Autoregressive Distributed Lag (ARDL) approach to run a slightly modified econometrics "Buffer Stock Model" of Frenkel and Jovanovic (1981) to estimate the determinants of foreign reserves in Nigeria with focus on income, monetary policy rate, imports and exchange rate. The results debunked the existence of buffer stock model for reserves accumulation and provide strong evidence in support of income as the major determinant of reserves holdings in Nigeria

Determining the optimal monetary policy instrument for Nigeria

It is considered inapt for central banks to adjust reserve money (quantity of money) and interest rate (price of money) at the same time. Thus, necessitates the need for a choice instrument. Enough evidence abounds in microeconomic theory on the undesirability of manipulating both price and quantity simultaneously in a free market structure. The market, in line with the consensus among economists, either controls the price and allows quantity to be determined by market forces, or influence quantity, leaving prices in the hands of the forces of demand and supply. This paper is, therefore, an attempt to examine the optimal monetary policy instrument for Nigeria between 1981Q1 to 2013Q2 using a bounds testing approach to cointegration. The result indicates the superiority of monetary instrument, followed by combined instrument and then interest rate instrument. The study therefore suggests that the CBN should lay more emphasis on monetary instrument particularly if output growth or stability is the primary goal of monetary policy

Money, Exchange Rate, Prices and Output in Nigeria: A Test of the P-Star Model

The search for robust model to predict inflation within a QTM framework gave birth to P-star model which has attracted less attention of researchers and practitioners in Nigeria. This study applied the methodology to high frequency Nigerian data from 1995M1 to 2018M6 to determine the validity of the model for Nigeria using error correction model (ECM). The result supports the working of the model but with slight modification. The modification centres on the incorporation of foreign price gap, (open economy view of inflation), reserve money (Friedmanic/monetarist view), price per litre of petroleum motor spirit (PMS) and output gap (Structuralist view). With this modification, P-star model proved to be a viable inflation forecasting alternative model for Nigeria. Consequently, the Central Bank of Nigeria is advised to consider adopting this modified version of the model to forecast inflation for Nigeria at least as a complimentary model to be used side-by-side with the existing forecasting model of the Bank. This will no doubt enhance the efficacy of the monetary policy of the Bank as such policies will be predicated on sufficient information, particularly on the future path of inflation

Capital Structure and Profitability of Deposit Money Banks: Empirical Evidence from Nigeria

The banking sector consolidation exercise that took place in Nigeria in 2005 did not only reduce the number of Deposit Money Banks (DMBs) but diversified their capital structure and adjusted their regulatory capital requirements. Given these developments, it is imperative that the DMBs determine the most optimal financing mix which minimises the cost of financing as well as maximises returns. This study empirically examined the impact of capital structure (owners’ funds and borrowed funds) on bank profitability in Nigeria. Applying autoregressive distributed lag model on a sample of 13 DMBs from 2005 through 2014, the study found that about 83 per cent of total assets employed by the DMBs are not financed by owners, confirming the hypothesis that banks are highly levered institutions. Consistent with the agency and static trade-off theories of capital structure and earlier empirical findings in Nigeria, the results further found evidence of a positive and significant influence of both owners’ and borrowed funds on profitability. However, borrowed funds was found to be more prevalent in enhancing the performance of DMBs during the study period. Following these findings therefore, the study recommends that DMBs should study and understand the dynamics of capital structure to enable them make optimal capital mix decision. In addition, since debt is more critical in boosting profitability of banks in Nigeria, DMBs should employ more debt than equity in financing real investment with positive net present values. The management and board of directors of DMBs should incentivise lenders and depositors so as to enhance easy access to funds other than shareholders’. Additional incentives on depositors’ and creditors’ funds such as increase in their returns are capable of attracting more funds from the investing public to create assets. Key Words: Capital Structure, Owners’ Funds, Borrowed Funds, Gross Earnings, Deposit Money Banks, Nigeri

Employee Commitment and Retention among Medical Doctors and Nurses in University Teaching Hospitals in North-Western Nigeria

Employee commitment and retention are two axioms associated with productivity and stability of employment in organizations. This concept is much more important in the health sector. This study investigates the relationships between each dimension of employee commitment and retention as well as determines their combined influence on retention among doctors and nurses in University Teaching Hospitals in North-Western Nigeria. The study uses cross sectional survey data collected in 2015 from 441 respondents drawn through multi-stage sampling technique. The data was analysed using correlation and regression techniques. The results, in line with multidimensional theory of commitment, indicate that employee commitment dimensions (affective, continuance and normative) are significantly related to retention. Contrary to findings of some previous studies, however, normative commitment is more prevalent in affecting retention than affective commitment. The study, therefore, recommends that management should foster and sustain high levels of affective and normative commitments among employees. Critical working tools should also be made readily available and the overall working environment be made conducive in order to enhance their commitment and retention. Key Words: Employee Commitment, Retention, Management, Teaching Hospitals, Nigeria

Developing banking system stability index for Nigeria

This study constructed a banking system stability index (BSSI) for Nigeria, using a combination of financial soundness indicators and macro-fundamentals. It applied statistical and Conference Board Methodology normalisation processes on Nigeria's banking and macroeconomic data from 2007Q1 to 2012Q2. The resultant index traced fairly well the episodes of crisis in the system over the study period. Hence, the BSSI is capable of acting as an early warning mechanism of signaling fragility. It could, therefore, be used as a complimentary regulatory policy tool to detect potential threat to enable monetary authorities take timely pre-emptive policy measures to avert crisis