Assessing the Short- and Long-Term Impact of Inflation Targeting Framework in Nigeria
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Abstract
This study evaluates the short- and long-term impact of inflation targeting on inflation control in Nigeria, considering the country's unique structural challenges. Using annual time series data from 1981 to 2023, the study employs the Autoregressive Distributed Lag (ARDL) model to assess the relationship between key macroeconomic variables such as inflation, monetary policy rate, central bank communication and transparency, money supply, real GDP, insecurity, and central bank independence. The findings reveal that while the monetary policy rate and central bank communication and transparency significantly reduce inflation, factors such as insecurity and money supply contribute to inflationary pressures. The results emphasize the importance of central bank independence and effective communication for the successful implementation of the inflation targeting framework. Additionally, the study highlights the limitations of inflation targeting in addressing structural challenges, such as supply-side constraints and insecurity. In conclusion, the study provides critical insights into the feasibility of adopting an inflation-targeting framework in Nigeria and suggests policy improvements for better inflation management.
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