Open Access Journal Article

Nigeria's Transition to Full-Fledged Inflation Targeting: Insights from Ghana’s Monetary Policy Frameworks

by Bello Dalhatu a,*
a
Monetary Policy Department, Central Bank of Nigeria, Abuja, Nigeria
*
Author to whom correspondence should be addressed.
FEL  2024 3(4):36; https://doi.org/10.58567/fel03040001
Received: 24 April 2024 / Accepted: 1 July 2024 / Published Online: 24 December 2024
View Full-Text
Download PDF

Abstract

In an effort to provide policy recommendations for Nigeria's transition to full-fledged inflation targeting, this study examines Ghana's monetary policy frameworks (monetary aggregates targeting and inflation targeting) using ARDL bounds test for cointegration and Error Correction Mechanism (ECM) on annual time series data spanning 1965 to 2022 obtained from the Bank of Ghana database and the World Bank database on World Development Indicators. The results demonstrate that monetary aggregates targeting has not been successful in both the short-run and long-run periods in moderating and stabilizing inflation; however, inflation moderated under inflation targeting in both the short run and the long term. This indicates that inflation targeting proves to be a superior monetary policy framework for inflation control.

Keywords: Monetary aggregates; Inflation targeting; Monetary policy; Ghana; Nigeria.;
Copyright: © 2024 by Dalhatu. This is an open-access article distributed under the terms of the Creative Commons Attribution License (CC BY) (Creative Commons Attribution 4.0 International License). The use, distribution or reproduction in other forums is permitted, provided the original author(s) or licensor are credited and that the original publication in this journal is cited, in accordance with accepted academic practice. No use, distribution or reproduction is permitted which does not comply with these terms.

Share and Cite

ACS Style
Dalhatu, B. Nigeria's Transition to Full-Fledged Inflation Targeting: Insights from Ghana’s Monetary Policy Frameworks. Financial Economics Letters, 2024, 3, 36. https://doi.org/10.58567/fel03040001
AMA Style
Dalhatu B. Nigeria's Transition to Full-Fledged Inflation Targeting: Insights from Ghana’s Monetary Policy Frameworks. Financial Economics Letters; 2024, 3(4):36. https://doi.org/10.58567/fel03040001
Chicago/Turabian Style
Dalhatu, Bello 2024. "Nigeria's Transition to Full-Fledged Inflation Targeting: Insights from Ghana’s Monetary Policy Frameworks" Financial Economics Letters 3, no.4:36. https://doi.org/10.58567/fel03040001
APA style
Dalhatu, B. (2024). Nigeria's Transition to Full-Fledged Inflation Targeting: Insights from Ghana’s Monetary Policy Frameworks. Financial Economics Letters, 3(4), 36. https://doi.org/10.58567/fel03040001

Article Metrics

Article Access Statistics

References

  1. Abango, M. A., Yusif, H., and Issifu, A. (2019). Monetary aggregates targeting, inflation targeting and inflation stabilization in Ghana. African Development Review, 31(4), 448-461. https://doi.org/10.1111/1467-8268.12399
  2. Abdulai, I. (2022). MONETARY POLICY, INFLATION STABILISATION AND OUTPUT GROWTH IN GHANA, 1980-2017. https://publication.aercafricalibrary.org/bitstreams/5a80f273-41f7-4c3d-9404-8a46fa6f2680/download
  3. Adaletey, J. E., Feruta, E. S., Mbilla, S. A. E., and Achiyaale, R. A. (2022). The unique adoption of inflation targeting monetary policy: lessons from an emerging economy. Asian Journal of Economics, Business and Accounting, 481-494. https://doi.org/10.9734/ajeba/2022/v22i23888
  4. Aliyu, S. U. R., and Englama, A. (2009). Is Nigeria Ready for Inflation Targeting?. https://www.researchgate.net/profile/Shehu-Usman-Rano-Aliyu/publication/46445701_Is_Nigeria_Ready_for_Inflation_Targeting/links/00b7d5217c543cca81000000/Is-Nigeria-Ready-for-Inflation-Targeting.pdf?_tp=eyJjb250ZXh0Ijp7ImZpcnN0UGFnZSI6InB1YmxpY2F0aW9uIiwicGFnZSI6InB1YmxpY2F0aW9uIiwicHJldmlvdXNQYWdlIjoiX2RpcmVjdCJ9fQ
  5. Allor, P. W. (2020). The effect of monetary policy and inflation on the exchange rate: A case study of Ghana. Journal of Economics and International Finance, 12(4), 151-163. http://dx.doi.org/10.5897/JEIF2020.1076
  6. Amaning, E. O., and Seidu, A. N. (2020). A Monetary Analysis of Ghana: Examining the Impact and the Causal Relationship Between Monetary Policy and Inflation in Ghana. American Journal of Economics, 4(1), 1-14. http://dx.doi.org/10.47672/aje.460
  7. Anachedo, C. K., Okeke, I., & Ubah, C. B. (2023). Monetary Policy A Catalyst for Inflation and Booster for Economic Growth; Evidence from Nigeria. Iconic Research and Engineering Journals, 6(11), 423-433. https://www.irejournals.com/formatedpaper/1704458.pdf
  8. Ardakani, O. M., Kishor, N. K., and Song, S. (2018). Re-evaluating the effectiveness of inflation targeting. Journal of Economic Dynamics and Control, 90, 76-97. https://doi.org/10.1016/j.jedc.2018.01.045
  9. Bawumia, M., Amoah, B., and Mumuni, Z. (2008). Choice of monetary policy regime in Ghana. Bank of Ghana Working Paper7. https://www.bog.gov.gh/wp-content/uploads/2019/07/Choice-of-Monetary-Policy-Regime-in-Ghana.pdf
  10. Bleaney, M., Morozumi, A., and Mumuni, Z. (2020). Inflation targeting and monetary policy in Ghana. Journal of African Economies, 29(2), 121-145. https://doi.org/10.1093/jae/ejz021
  11. Chinaemerem, O. C., and Akujuobi, L. E. (2012). Inflation targeting and monetary policy instruments: evidence from Nigerian and Ghana. Kuwait Chapter of Arabian Journal of Business and Management Review, 33(847), 1-30. https://j.arabianjbmr.com/index.php/kcajbmr/article/view/301
  12. Ekong, C. N., and Effiong, U. E. (2020). Monetary Policy and Inflation Targeting in Nigeria: The Need for Monetary-Fiscal Coordination. American Journal of Theoretical and Applied Business, 6(3), 37-46. https://doi.org/10.11648/j.ajtab.20200603.14
  13. Garba, A. M. (2023). The threshold level of budget deficit and money supply that stabilize inflation in Nigeria. Journal of Global Economics and Business, 4(13), 88-96. http://dx.doi.org/10.58934/jgeb.v4i13.142
  14. Gwaison, P. D., and Ogba, L. (2021). Inflation Targeting and the Demand for Money in Nigeria; An Auto Regressive Distributive Lag (Ardl) Approach. International Journal of New Economics and Social Sciences (Ijoness), 14(2), 77-94. https://doi.org/10.5281/zenodo.5972339
  15. Karahan, Ö. (2012). The relationship between inflation and inflation uncertainty: evidence from the Turkish economy. Procedia economics and finance, 1, 219-228. http://dx.doi.org/10.1016/S2212-5671(12)00026-3
  16. Kyereboah‐Coleman, A. (2012). Inflation targeting and inflation management in Ghana. Journal of Financial Economic Policy, 4(1), 25-40. https://doi.org/10.1108/17576381211206460
  17. Loayza, N. V., and Ranciere, R. (2006). Financial development, financial fragility, and growth. Journal of money, credit and banking, 1051-1076. http://dx.doi.org/10.1353/mcb.2006.0060
  18. Narayan, P. K., and Smyth, R. (2006). What determines migration flows from low‐income to high‐income countries? An empirical investigation of Fiji–Us migration 1972–2001. Contemporary economic policy, 24(2), 332-342. http://dx.doi.org/10.1093/cep/byj019
  19. Nene, S. T., Ilesanmi, K. D., and Sekome, M. (2022). The effect of inflation targeting (IT) policy on the inflation uncertainty and economic growth in selected African and European countries. Economies, 10(2), 37. http://dx.doi.org/10.3390/economies10020037
  20. Nwachukwu, P. O., Yaba, L., and Dibie, A. C. (2014). Error Correction Model Analysis of Determinants of Inflation in Nigeria (1970‐2013). Journal of Economics and Sustainable Development, 5(4), 59–64. https://www.iiste.org/Journals/index.php/JEDS/article/viewFile/17504/17924
  21. Ojo, M. O. (2013). Transition to full-fledged inflation targeting: A proposed programme for implementation by the Central Bank of Nigeria. https://dc.cbn.gov.ng/cbn_occasional_papers/9/
  22. Pesaran, M. H., and Shin, Y. (1998). An Autoregressive Distributed-Lag Modelling Approach to Cointegration Analysis. In Econometrics and Economic Theory in the 20th Century. The RagnarFrisch Centennial Symposium, ed. S. Strøm, chap. 11, pp. 371–413. Cambridge: Cambridge University Press
  23. Pesaran, M. H., Shin, Y., and Smith, R. J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16(3), 289-326. https://doi.org/10.1002/jae.616
  24. Puni, A., Osei, B. A., and Barnor, C. (2014). Effects of inflation targeting policy on inflation rates and gross domestic product in Ghana. European Journal of Business and Management, 6(21), 54-60. https://www.researchgate.net/profile/Albert-Puni/publication/281111444_Effects_of_Inflation_Targeting_Policy_on_Inflation_Rates_and_Gross_Domestic_Product_in_Ghana/links/55d62bfd08aed6a199a4c3df/Effects-of-Inflation-Targeting-Policy-on-Inflation-Rates-and-Gross-Domestic-Product-in-Ghana.pdf?_tp=eyJjb
  25. Rahman, M. M., and Kashem, M. A. (2017). Carbon emissions, energy consumption and industrial growth in Bangladesh: Empirical evidence from ARDL cointegration and Granger causality analysis. Energy policy, 110, 600-608. http://dx.doi.org/10.1016/j.enpol.2017.09.006
  26. Valogo, M. K., Duodu, E., Yusif, H., and Baidoo, S. T. (2023). Effect of exchange rate on inflation in the inflation targeting framework: Is the threshold level relevant?. Research in Globalization, 6, 100119. http://dx.doi.org/10.1016/j.resglo.2023.100119