Transition to inflation targeting monetary policy framework in Nigeria

Sikiru, Adeyemi Abidemi and Salisu, Afees A. (2025): Transition to inflation targeting monetary policy framework in Nigeria. Forthcoming in: : pp. 1-55.

Abstract

Informed by the recent run of rising and persistent inflation in Nigeria, which puts headline and food inflation at 28.2% and 32.8%, respectively, and its attendant consequences on macroeconomic performance, this study makes a case for inflation targeting as an alternative monetary policy framework to achieve the principal goal of monetary policy - price stability. We highlight from the literature and empirically explore relevant criteria that could ensure a smooth transition of the Central Bank of Nigeria to an inflation-targeting institution. First, we suggest either of the following bands for (headline) inflation targeting: 10.56-13.14%, 13.46-14.70%, or 10.90-16.47%, while the Bank can also keep a close watch on food inflation. Second, we propose some well-thought-out econometric models that the Bank can adopt to forecast inflation and determine the optimal policy rate to steer the economy. Third, we recommend legal ways of entrenching the central bank's autonomy through granting the power of appointment, dismissal, and accountability in the legislature rather than the executive to strengthen the central bank's independence. Lastly, we inform that the inflation targeting framework can be enhanced by involving the public through the periodic publication of reports, discussions at town hall meetings, and defence of the monetary policy operation with the legislature.

• Item Type: MPRA Paper
• Language: English
• Keywords: Inflation targeting, monetary policy, Central bank, Forecasting, Nigeria
• Subjects: E - Macroeconomics and Monetary Economics > E1 - General Aggregative Models > E17 - Forecasting and Simulation: Models and Applications; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level ; Inflation ; Deflation; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies; N - Economic History > N1 - Macroeconomics and Monetary Economics ; Industrial Structure ; Growth ; Fluctuations > N17 - Africa ; Oceania

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