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Macro-Financial Linkages: Implications or Monetary and Financial System Stability
No full textThis paper is structured into two parts. Section I discuss the structure of the macroeconomy and the financial industry, and the interactions between monetary policy and the financial system. The section also showed how monetary policy could create the condition for financial stability. Section 2, on the other hand, discuss the implications of macro-financial linkages for monetary and financial system stability with emphasis on how the new credit risk transfer mechanism (securitisation and derivatives) had altered the nature of some macro-financial linkages, with considerable policy implications. The section concluded by referring to the new direction of macro-prudential regulation and the tools for managing risks created by macro-financial linkages. Reference was also made to the recent subprime financial crisis that started in the US economy with lessons for emerging market economies, such as Nigeria
Macro-Prudential Regulation and Effective Monetary Policy
No full textThis paper makes a bold attempt to examine some of the issues within the narrow context of monetary policy. Following the introduction, Section 2 examines some conceptual issues including the institutional framework for monetary and macro-prudential policy. Section 3 discusses the objectives and instruments of monetary and macro-prudential policy including indicators of systemic risk, while Section 4 examines at the interaction of macro-prudential with monetary policy and how this could be enhanced. In Section 5, the experiences of other countries with macro-prudential regulation are presented and lessons drawn for Nigeria. Section 6 concludes the paper and provides insights for an effective macro-prudential policy framework for Nigeria
Macro-Prudential Policies and Financial Stability: A Theoretical Background
No full textThe paper is organized as follows: section two and three contains conceptual issues and theoretical perspectives, respectively, while section four looked at complementarity and differences between macro-prudential and micro-prudential regulation. Thereafter, section five reviewed objectives and rationale for macro-prudential regulation vis-Ã -vis its institutional framework and scope. Section six looked at instruments of macro-prudential regulation and the implication of the new Basel III, while section seven focused on institutional and governance structure as key elements of macro-prudential regulation. The paper further gave a general insight on how macro-prudential policy framework should be structured in section eight and later concluded in section nine
Does Government Spending Undermine Monetary Policy in Nigeria?
No full textIn Nigeria, anecdotal evidence suggest that the fiscal/operations of government, especially disbursements from the Federation Account to the three-tiers of government, had over the years created liquidity challenges requiring aggressive monetary management. Against the background, this paper addresses two questions: (i) Does government spending have significant spill-over effects on inflation in Nigeria? (ii) Does government, spending induce a concomitant response by the CBN? ln addition, unlike the sparse literature in Nigeria on these two issues, which essentially relies on constant parameter model we use of time-varying parameter vector autoregressive (TVP-VAR) model with stochastic volatility. Applying this framework allows us not only to identity the general relationship between the variables of interest; it also permits us to understand the dynamics of these variables over time in line with the underlying macroeconomic structure of the economy. The posterior estimates of the means show that the response of inflation government spending shock was relatively stable for the period prior to 1990 over the estimation sample. A tendency to elevate prices became pronounced became more and 2011. Concomitantly, short-term interest role (prime lending rate) had shown greater variability in terms of its response lo government expenditure shocks in the period 1991 to 2011 as in the case of inflatio
An empirical estimate of the optimal level of fiscal deficit in Guinea
No full textExcessive deficits, irrespective of the mode of financing, are assumed to be growth retarding. The conventional wisdom is that high budget deficit is a source of economic instability. Empirical research, however, does not conclusively support this conventional wisdom; results are mixed and controversial across countries . These conflicting results have raised the important question of heterogeneity and also underscored the usefulness of time series data for country specific studies in order to address heterogeneity. This paper sought to ascertain the relationship between fiscal deficits and economic growth in Guinea and to find the threshold level of fiscal, deficit that is conducive for growth. The empirical results indicate that there exist a positive relationship between fiscal deficit and economic growlh in Guinea albeit with a one year lag. The threshold level of fiscal deficit conducive for economic growth for Guinea was identified ot 3.0 per cent. The findings of this paper provide ample evidence in support of the proposition that fiscal, deficit beyond certain threshold is detrimental to growth. This suggests that the Guinean authorities shoud endeavour to implement policy measures aimed at reducing fiscal deficits to levels below or equal to 3.0 per cent (levels consistent with economic growth)
Testing the Weak-form Efficiency Market Hypothesis: Evidence from Nigerian Stock Market
No full textIn recent years, the Nigerian Stock Exchange (NSE) has witnessed an unprecedented growth in market capitalization, membership, value and volume traded. By December 2007, the All Share Index has grown massively over 57,990.2 from 1113.4 in January 1993. This rising interest in investment opportunities in the NSE raises questions about its efficiency. This paper tests the Weak-form Efficient Market Hypothesis of the NSE by hypothesizing Normal distribution and Random walk of the return series. Daily and weekly All Share Index and five most traded and oldest bank stocks of the NSE are examined from January 2007 to December 2009 for the daily data and from June 2005 to December, 2009 for the weekly data. The empirical findings derived from the autocorrelation tests for the observed returns conclusively reject the null hypothesis of the existence of a random walk for the market index and four out of the five selected individual stocks. In general, it can be concluded that the NSE stock market is inefficient in the weak form. Given the empirical evidence that the stock market is weak-form inefficient, it is believed that anomalies in stock returns could be existent in the market and reduction of transaction cost so as to improve market activities and minimizing institutional restrictions on trading of securities in the bourse were therefore recommended
Reactions of Stock Market to Monetary Policy Shocks During the Global Financial Crisis: The Nigerian Case
No full textThis paper seeks to assess the reactions of Nigeria’s stock market to monetary policy innovations during the period of global financial crisis on the basis of monthly data over the period January, 2007 to August, 2011. In particular, stock market return was regressed against major monetary policy instruments; money stock (M1, and M2) and monetary policy rate (MPR). The theoretical basis for the paper stems from the works of new classical macroeconomics and rational expectation hypothesis (REH). Lucas (1972) postulated that only the unanticipated monetary shock influences real economic activity. Using the GARCH by developed Engle and Bollerslev (1986) and EGARCH by Nelson (1991) methodologies, the paper empirically assessed the impact monetary policy innovations exerts on stock returns in the Nigeria’s Stock Exchange (NSE) market during the period of the crisis. Results from the empirical analysis revealed that the unaticipated component of policy innovations on M2 and MPR exerts distabilizing effect on NSE’s returns, whereas the anticipated component does not. This lends support to the REH argument for the Nigerian stock market. The pqper strongly recommends realistic and timely policy pronouncements by the MPC to achieve stability in the market
Understanding the Dynamics of Inflation Volatility in Nigeria: A GARCH Perspective
No full textThe estimation of inflation volatility is important to Central Banks as it guides their policy initiatives for achieving and maintaining price stability. This paper employs three models from the Generalized Autoregressive Conditional Heteroscedasticity (GARCH) family with a view to providing a parsimonious approximation to the dynamics of Nigeria’s inflation volatility between 1996 and 2011. Of the competing models, the asymmetric TGARCH (1,1) provides an appropriate paradigm for explaining the dynamics of headline and core CPI volatilities in Nigeria, while the symmetric GARCH (1,1) was found to be adequate for food CPI. The results are quite revealing. Firstly, model outcomes indicate high persistence parameters for the core and food CPI, implying that the impacts of inflation shocks on their volatilities die away very slowly. However, the impact of inflation shocks on headline volatility die out rather quickly. Secondly, substantial evidence of asymmetric effect was found for both headline and core inflation types while the contrary was confirmed for food inflation. Thirdly, positive inflationary shocks yielded higher volatilities in headline and core inflation than negative innovations, implying the absence of leverage effect in them. The paper finds that periods of high inflation volatility are associated with periods of specific government policy changes, shocks to food prices and lack of coordination between monetary and fiscal policies
Design, Institutional Arrangement and Implementation of Macro-Prudential Framework
No full textThe paper says that a sound and well-functioning financial system is viewed as compromising three pillars that are necessary to support orderly financial development and sustained financial stability. It enumerates the three (3) pillars as including: Macro-prudential surveillance and financial stability analysis; Financial system supervision and regulation to help manage the risks and vulnerabilities protect market integrity and good governance of financial institutions\u27; and Financial system infrastructure including: legal infrastructure for finance; systemic liquidity infrastructure; and transparency, governance and information infrastructure
Regulation and Supervision of Financial Institutions - the Nigerian Experience
No full textThis paper focuses on the Nigerian experience, with regulation and supervision of financial institutions and is structured into nine sections. Following the introduction, section two discusses the reasons for FIs regulation and supervision, while section three dwells on the meaning and general principles of banking regulation. Section four Nigeria, while section five addresses the structure, organisation and methodology of FIs supervision with particular reference to the Central Bank of Nigeria (CBN). Section six highlights CBN\u27s experience in the regulation and supervision of FIs. In section seven the recent CBN initiatives at strengthening the regulatory architecture are presented. Section eight highlights the resolution mechanisms for distressed and failed banks and section nine offers some recommendations and concludes the paper