The Relative Effect Of Monetary And Fiscal Policies On Capital Account Balance In Nigeria
Uzoma Chidoka Nnamaka Ph.D
Rivers State Universal Basic Education Board, Port Harcourt, Nigeria
Odungweru Kingsley Nnana Ph.D
Department of Economics, Faculty of Social Science, Rivers State University, Port Harcourt, Nigeria
Keywords: Monetary Policy, Fiscal Policy, Capital Account Balance, Autoregressive Distributed Lags
Abstract
The study examined the effects of monetary and fiscal policies on capital account balance in Nigeria from 1980 to 2018. Time series data on capital account balance, money supply, interest rate, exchange rate, government expenditure and government tax was sourced from the Central Bank of Nigeria (CBN) statistical bulletin. The study adopted the Auto Distributed Lags (ARDL)/ Bounds testing approach to cointegration to estimate the models. The test for unit root was carried out using the Augmented Dickey-Fuller (ADF) test for stationarity and the result showed that all the variables used in the study were stationary at first difference except for government tax which attained stationarity at levels. The Bounds test result showed that the variables in the model have long run relationship. It was further revealed that monetary policy has been leveraged on to boost the capital account balance in Nigeria. However, fiscal policy did not effectively play the role of improving capital account balance in Nigeria for the study period. Based on the findings, it was concluded that the combination of both monetary and fiscal policies is crucial in achieving a viable capital account balance. The study therefore recommended amongst others that government through the relevant authorities should channel efforts towards the management of an effective interest rate and exchange rate system that would lead to a favourable consequence on the capital account balance in Nigeria