Effect of Real Economy Predictors on Monetary Policy Responses: Testing Model Fits For OLS, IV and IV-GMM Estimators
Effect of Real Economy Predictors on Monetary Policy Responses: Testing Model Fits For OLS, IV and IV-GMM Estimators

Summary/Abstract: The paper investigates the effect of real economy predictors on domestic monetary policy reaction function in Nigeria over the period of 1983 and 2018, using a quarterly data obtained from the central bank of Nigeria Statistical Bulletin. The evidence is based on the Ordinary Least Square (OLS), Two stages Least Squares (2SLS) and Generalized Method of Moment (GMM) estimators. The findings suggest that inflationary focus is necessary condition, but not sufficient as the welfare implication must also be built into policy reactions. Thus, it recommends that policy discretion towards improving the wellbeing; reduce productivity shocks and ensuring greater policy coordination is urgently required.

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