Monetary and Fiscal Policy Mix in a Small Open Economy: Evidence from Nigeria

Abstract In this article we employed structural vector auto-regressive (SVAR) model to assess the degree of coordination between monetary and fiscal policy and how such coordination has helped to attain common policy goals of macroeconomic stability in Nigeria using monthly data from 2003 to 2017. Our main results indicate that while expansionary monetary policy may have contemporaneous positive effects on the economy, expansionary fiscal policy, however, does not automatically translate to growth. On the other hand, fiscal expansion aggravates price level but has no significant impact on interest rates. Thus, the main conclusion of the article is that even though, coordinated, rather than divergence measures of monetary and fiscal policies could help to stimulate economic growth without imperiling price stability. Hence, fiscal activities around more capital projects will help uplift the economy and further spur private sector investment appetite in the economy.