Dynamic Interactions Between Macroeconomic Stability and Policy Uncertainty in Nigeria: An Insight from Mt-Nardl Approach

Abstract

Considering Nigeria macroeconomic volatile environment evidenced by dependence on oil export as the major source of foreign exchange, economic imbalances, and regular shifts in economic policy, this paper consider the varying Economic Policy Uncertainty (EPU) levels affect major economic indicators such as inflation, GDP and exchange rates adopting the Multiple Threshold Nonlinear Autoregressive Distributed Lag (MT-NARDL) as the analytical framework. Contrasting conventional models, the MT-NARDL encompass asymmetries and regime-specific dynamics. Outcomes reveal that economic policy uncertainty influences macroeconomic upshots in different ways across various regimes of low, moderate, and high uncertainty. For instance, in low- economic uncertainty periods, there are more predictable economic trends, whereas in higher-uncertainty periods, shocks in policy have stronger and multifaceted effects. Remarkably, monetary policy becomes less effective under high uncertainty, while inflation reacts piercingly to lingering negative uncertainty. This study suggests reducing policy vagueness, strengthening transparency, plus ensuring steady communication to sustain stability and restore investor confidence. It advocate for stronger institutional framework such as independent monetary authorities and flexible financial markets to safeguard the economy from fright or shocks.