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COUNTER-CYCLICAL POLICIES AND THE PARADO OF INFLATIONARY RECESSION IN NIGERIA

COUNTER-CYCLICAL POLICIES AND THE PARADO OF INFLATIONARY RECESSION IN NIGERIA

 

Abstract: This study examined the feedback of inflationary recession based on its response to monetary and fiscal policies in Nigeria. This is against the postulation of A.W. Phillips in 1958 who assumed a negative relation between inflation and unemployment. The paper used data from 1971 2015 (the period underlying the emergence of stagflation) and adopted the Ordinary Least Suare (OLS) method to give empirical content to the theoretical postulations. The study found out that monetary and fiscal policies are not significant in curbing inflationary recession in Nigeria and needs to be re-examined. Also, the fairly strong relationship between the variables suggests that there is still weak complementarity between monetary and fiscal policies in Nigeria. Comparatively, fiscal policy seems more effective than monetary policy in reducing economic stagnation and inflation in Nigeria. Also, the Philips relationship appears to be inverse in the Nigerian economy and the response of stagflation to monetary and fiscal policies is still inconseuential. The study therefore recommends that, first; the fiscal authority should complement the monetary authority by providing a good regulatory environment that will encourage the appropriate conduct of monetary policy in Nigeria, second; to reduce inflationary recession, fiscal policies should be focused on the objective of easing labour market conditions and increasing productivity, and third; to buffer internal balance measures of monetary policy, the monetary authority should avoid rapid changes in the rate of monetary growth as this would lead to variations in the rate of inflation.

JEL Classification: 458, H5, P24, P44

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