Acta Universitatis Danubius. Œconomica, Vol 15, No 1 (2019)

Abstract

This study restates the Saint-Louis equation to reinvestigates the relative effectiveness of fiscal and monetary policies on the Nigerian economy. This study made use of annual data that spanned 1981-2015. The unit root test revealed that the variables employed contained a unit root. An Autoregressive Distributed Lag (ARDL) technique was used. Cointegration test among the variables was passed using the ARDL bound test technique. The ARDL parameter estimates are not sufficient enough to convince hence we compute impulse response function for the estimated ARDL model. The impulse responses show that GDP responses to fiscal and monetary policy shocks are mixed in signs. Ultimately, the impulse responses allow us to find out that the very long run responses of GDP to fiscal and monetary policies shocks are negative and positive. This study helps to shed light on fiscal-monetary impacts’ puzzle in the existing literature. Conclusively from our findings, monetary policy is effective than fiscal policy in Nigeria. Based on our findings, we suggest that the government and the policymakers should try to simultaneously make fiscal and monetary policies formulation in such a way that their temporal and cumulative effects on the economy for growth and sustainability motive would be positive