An Estimation of Causal Interaction Between Monetary and Fiscal Stabilization Policies on Economic Growth in Nigeria

Abstract

This study was structured to examine the causal relationship between monetary and fiscal stabilization policies on economic growth in Nigeria. Data employed for econometric analysis were obtained from the Central Bank of Nigeria statistical bulletin published in 2022. The analytical methodology adopted was the Granger Causal technique. Augmented Dickey-Fuller test was employed to examine the stationary properties of the time series at a 5 per cent level. None of the series was stationary at a level, which validated the hypothesis of non-stationarity. Stationarity was attained after the first and second differencing respectively at a 0.05 level of significance. A cointegration test was also performed to confirm the existence or otherwise of a long-run equilibrium relationship at 0.05 level. The results indicate long-run equilibrium relationships among the variables. The results of Granger Causality signify that both monetary and fiscal policies are potent stabilization instruments in gauging the health of the Nigerian economy to guarantee that the economy is prodded onto a steady long-run growth path. Therefore, it is recommended that growth in the money supply should be consciously backed up with gold and other foreign hard currencies to guarantee price stability, and that, the Federal Government should establish a coordinating agency to synchronize conflicting monetary and fiscal policies and implementation that are inimical to the attainment of the macroeconomic goal of economic stabilization and growth.