Asymmetric effects of monetary policy shocks on output growth in Nigeria: Evidence from nonlinear ARDL and Hatemi‐J causality tests

Abstract

Given the importance of output growth in Nigeria and the need for monetary policy decisions to be guided by the knowledge of the asymmetric effects of positive and negative monetary policy shocks, this study investigates the asymmetric effects of monetary policy shocks on output growth in Nigeria using quarterly data from 1981Q1 to 2018Q4. The study employs the recently developed Lee and Strazicich unit root test with structural breaks, Nonlinear ARDL, and the Hatemi-J causality tests. The result reveals the presence of long-run and short-run asymmetries in the effect of monetary policy shocks on output growth in Nigeria. The results of the long-run effect show that both positive and negative monetary policy rate shocks have positive, elastic, and statistically significant effect on output growth. For the short-run, the results indicate that the effect of negative monetary policy shocks dominate the effects of positive monetary policy rate shocks, while the effect of positive money supply shocks dominates the effect of negative money supply shocks. Furthermore, the study finds evidence in support of the expansionary monetary policy in the long-run. Hence, the recommendations for expansionary monetary policy decision to enhance output growth.

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