MonetaryPoliciesandNigerianEconomy:SimulationsfromDynamicStochasticGeneralEquilibrium(DSGE)Model Nwaobi,Godwin MunichPersonalRePEcArchive

Munich Personal RePEc Archive

Monetary Policies and Nigerian

Economy:Simulations from Dynamic Stochastic General

Equilibrium(DSGE)Model

Nwaobi, Godwin

QUANTITATIVE ECONOMIC RESEARCH BUREAU, NIGERIA

17 April 2012

Online at https://mpra.ub.uni-muenchen.de/38167/

MPRA Paper No. 38167, posted 17 Apr 2012 18:54 UTC

MONETARY POLI CI ES AND NI GERI AN ECONOMY:

SI MULATI ONS FROM DYNAMI C STOCHASTI C GENERAL EQUI LI BRI UM ( DSGE) MODEL

GOD W I N CH UKW U D UM N W AOBI

PROFESSOR OF ECONOMI CS / RESEARCH DI RECTOR gcnwaobi@quant erb.org

08035925021

( www.quant er b.org )

QUANTI TATI VE ECONOMI C RESEARCH BUREAU PLOT 107 OKI GWE ROAD

P. O. BOX 7173, ABA ABI A STATE, NI GERI A WEST AFRI CA

info@quant erb.org

1.0 I N TROD UCTI ON

I ndeed, t he t ask of m onet ary m anagem ent is usually perform ed by t he m onet ary aut horit y on behalf of governm ent . Here, t he t ool for m onet ary m anagem ent is m onet ary policy, which is t he use of som e com binat ions of inst rum ent s by t he cent ral bank t o influence t he availabilit y and cost of credit and m oney in t he dom est ic econom y wit h a view t o achieving m acroeconom ic balance. I n perform ing t heir t ask of m onet ary m anagem ent , m onet ary aut horit ies apply t heir discret ionary powers of influencing t he m oney st ock and int erest rat e. However, a key challenge in m onet ary m anagem ent is how t o deal wit h uncert aint y .

Thus, for t his purpose, t he cent ral bank of Nigeria ( est ablished in 1957) is t he sole m onet ary aut horit y in Nigeria.

During t he for form at ive years ( 1959 – 1962) , t he m ost act ive policy inst rum ent was t he int erest rat e and not able act ions t aken during t his period included t he issuance of t he Nigerian currency and int roduct ion of t he first m oney m arket inst rum ent ( t reasury bills) . Yet , t he first era of t he period ( 1962 – 1975) wit nessed t he am endm ent Act of 1962 t hat st rengt hened t he cent ral bank for effect ive m onet ary policy prom ot ion.

Unfort unat ely, t he 1970 Nigerian – Biafran Civ il War pr opagat ed high inflat ion rat es and t he cent ral bank consequent ly em barked on som e direct cont rol m easures in order t o rest ore st abilit y in t he econom y. Again, t he period ( 1975 – 1992) has been described as t he direct cont rol era ( where m onet ary aut horit y im posed quant it at ive int erest rat e and credit ceilings on t he m oney deposit of banks and sust ained t he sect oral credit allocat ion policy t o preferred sect ors) .

Yet , t his period of t he cont rol regim e equally experience an im paired effect iveness of m onet ary policy ( Aj ay i and Oj o, 1979;

Nnanna, 2002) .

However, direct cont rols, pervasive governm ent int ervent ion in t he financial syst em result ing in t he st ifling of com pet it ion and resource m isallocat ion, necessit at ed t he int roduct ion of St ruct ural Adj ust m ent Program m e ( SAP) . The SAP reform s which focused on st ruct ural changes, m onet ary policy, int erest rat e adm inist rat ion and foreign exchange m anagem ent , encom pass bot h financial m arket liberalizat ion and inst it ut ional building in t he financial sect or.

Yet , bet ween 1986 and 1993, t he cent ral bank m ade effort s t o creat e a new environm ent for t he int roduct ion of indirect approach t o m onet ary m anagem ent . Here, a m aj or act ion t aken as part of t he m onet ary reform s program m e was t he init ial rat ionalizat ion and event ual elim inat ion of credit ceilings for select ed banks. Equally, t he CNB liberalized t he int erest rat e regim e and adopt ed t he policy of fix ing only it s m inim um rediscount rat e t o indicat e t he desired direct ion of int erest rat e.

Following t he prom ulgat ion of CBN decree 24 and t he banks and ot her financial inst it ut ions decree ( BOFI D) 25 of 1991, t he period of indirect inst rum ent of m onet ary cont rol com m enced. Specifically, in 1994, direct int erest rat e cont rol was rest ored. Unfort unat ely, as t hese and ot her cont rols had negat ive econom ic effect s, t ot al deregulat ion of int erest rat es was again adopt ed in last quart er, 1996. As part of t he reform s, t he foreign exchange m arket was liberalized w it h t he reint roduct ion of t he Dut ch Auct ion Syst em ( DAS) in 2002, wit h t he obj ect ives of realigning t he exchange rat e of t he naira, conserving ext ernal r eserves, enhancing m arket t ransparency and curbing capit al flight from t he count ry.

Again, in 2005, t he cent ral bank launched a new m onet ary policy fram ework and it s obj ect ives include cont inued drive t o achieve lower ( single digit ) inflat ion rat e, gradual reduct ion in t he cost of borrowing, m aint enance of m onet ar y st abilit y and sust aining

exchange rat e st abilit y . However, t he period 2006 – 2008 ( referred t o as t he period of post – bank ing consolidat ion) was charact erized by t he gradual run – down of t he cent r al bank of Nigeria holding of t reasury bills. As at Decem ber 2006, t he m onet ary policy com m it t ee of t he CBN adopt ed a new Monet ary Policy Rat e ( MPR) t o replace t he Minim um Rediscount Rat e ( MRR) . Where as t he com m it t ee arrangem ent was enshrined in t he cent ral bank act s of t he count ries where t his was t he pract ice, it was not unt il 2007 t hat t he MPC was enshrined in t he CBN Act 2007.

I ndeed, t he out com es of m onet ary policy in Nigeria have been influenced by t he general m acroeconom ic env ironm ent such as t he st ance of fiscal policy. Unfort unat ely, ov er t he years, t here has been t he problem of fiscal dom inance which oft en ham pers t he effect ive im plem ent at ion of m onet ary policy . I n fact , from incept ion, t he CBN has im plem ent ed t wo m aj or m onet ary policy fram eworks exchange rat e t arget ing ( 1959 – 1973) and m onet ary t arget ing ( 1974 – 2012) . Here, t wo broad policy regim es were adopt ed in t he im plem ent at ion of m onet ary policy fram eworks: direct and indirect m onet ary cont rol r egim es. Not ably, t hese policy regim es operat ed on short t erm basis ( annual) up t o 2001 and subsequent ly t ransit ed t o m edium t erm m onet ary policy fram ework as at present . Yet , as at 2010, m onet ary m anagem ent was conduct ed wit hin t he fram ework of m onet ary t arget ing; and t he m aj or inst r um ent of m onet ary policy rem ained open m arket operat ions, discount window operat ions and foreign exchange m arket int ervent ions.

However, m onet ary growt h was sluggish despit e t he m onet ary easing policy m aint ained by t he bank . Here, t he st ance of m onet ary policy was t o inj ect liquidit y int o t he econom y and rest ore confidence in t he Nigerian financial syst em . The m easures t aken included t he cont inuat ion of guarant ees on int er bank t ransact ions

and t he purchase of non- perform ing loans from t he deposit m oney banks ( DMBS) by AMCON ( Asset Managem ent Corporat ion of Nigeria) in order t o st rengt hen t he balance sheet s of t he banks and facilit at e t heir abilit y t o ext end credit t o t he dom est ic econom y. As part of t he ongoing reform in t he Nigerian Banking sect or, t he CBN reviewed t he universal bank ing m odel which encouraged banks t o act as financial super m arket s. The new banking m odel re- int roduced t he cat egorizat ion of banks int o com m ercial, m erchant and specialized banks ( n0n- int erest banks, m icrofinance banks, developm ent bank s and m ort gage banks) . I n general, t he m odel was designed t o ensure t he evolut ion of a financial landscape t hat would be capable of providing t he plat form for sust ainable econom ic growt h and developm ent . As a t 2011, t he com prehensive st ruct ure of t he Nigerian financial sy st em include CBN, AMCON, SEC ( Securit ies and Exchange Com m ission) , NAI COM ( Nat ional I nsurance Com m ission) , PENCOM ( Nat ional Pension Com m ission) , ( 24) deposit m oney banks, ( 5) discount houses, ( 866) m icrofinance banks, ( 108) finance com prise, 690 securit y brokerage firm s, ( 13) pension fund adm inist rat ors, ( 5) Pension Fund cust odians, ( 1959) Bureau – de – change, one ( 1) Com m odit y and Securit y Exchange, ( 101) Prim ary Mort gage I nst it ut ions, ( 5) Developm ent Finance I nst it ut ions and ( 73) I nsurance Com panies ( CBN, 2010) . However, an assessm ent of t he healt h of t he banking sect or indicat ed t hat only sixt een banks m et t he st ipulat ed m inim um capit al requirem ent s. On t he ot her hand, t he ext ernal cam e under pressure as reflect ed in t he huge im port bills, a drawdown on ext ernal reserves and a declining foreign direct invest m ent . Again, t he overall BOP deficit increased while inflat ionary pressures rem ained above single digit in 2010.

Consequent ly, t he use of m onet ary policy for m acroeconom ic st abilizat ion in Nigeria poses a num ber of challenges t hat have not

been fully analyzed. These include t he need t o coordinat e m onet ary and exchange rat e policy wit h fiscal policy in order t o m anage large volat ile aid inflows and governm ent revenues from nat ural resource exploit at ion. I n part icular, econom ic policy needs t o consider t he pot ent ial adverse effect s of such shocks on t he t radable sect or ( called Dut ch disease problem ) as well as t he t radit ional obj ect ives of inflat ion and out put st abilizat ion. I n such an environm ent , t he current m onet ary policy set t ing in Nigeria m ay be viewed as an int erim st age in a m ore t owards wider adopt ion of form al inflat ion t arget ing pract ices in which inflat ion ( expect ed inflat ion) is an int erm ediat e t arget ( goal) , inst ead of eit her som e m onet ary aggregat e or t he ex change rat e; and where t he int erest rat e rat her t han base m oney is t he operat ional t arget . Thus, t he relevant policy quest ions are not w holly t hose concerned wit h how, and over what horizon, Nigeria m ay m ake t he m ore t owards form al inflat ion t arget ing; t hey m ust also include how best t he available inst rum ent s of m onet ary policy be deployed ins shock prone m at ure st abilizers. I t is t herefore t he basic t hrust of t his paper t o evaluat e m onet ary policy – t rade offs in Nigeria using a dynam ic st ochast ic general equilibrium ( DSCE) m odel est im at ed on dat a for Nigeria ( m at ure st abilizer in sub- Saharan Africa) t ak ing int o xxx t he sources of m aj or exogenous shocks, t ransm ission m echanism s, and level of financial developm ent .

2.0 OBJECTI VES OF STUD Y

The fundam ent al aim of t his research proj ect is t o build a specific st ruct ural dynam ic st ochast ic general equilibrium m odel of t he Nigeria Econom y. This obj ect ive requires us t o carry out t he following st eps:

( 1) To analyze t he t radeoffs of bot h foreign exchange sales and open m arket operat ions in t he conduct of m onet ary policy in Nigeria.

( 2) To com pare t hree different rules for how t he cent ral bank deploys it s available inst rum ent s:

( a) Under t he first rule, t he cent ral bank st abilizes t he exchange rat e

( b) Under t he second rule and t hird rules, t he cent ral bank is set t o st abilize som e m easure of inflat ion around a t arget .

( 3) To consider t he case where m onet ary policy seeks t o st abilize CPI inflat ion as well as a policy t hat st abilizes inflat ion in non – t raded goods.

( 4) And t o consider t he best response, in t erm s of m inim izing m acro econom ic volat ilit y of alt ernat ive m onet ary policy rules in response t o foreign aid and num erous ot her exogenous shocks t hat are im port ant in Nigeria.

3.0 TH EORERI CAL AN D M ETH OD OLOGI CAL FRAM EW ORK

Following Adam and O’ Connell ( 2005) , Buffie et . Al. ( 2004) , Peiris and saxegaard ( 2010) , we develop a m acroeconom ic m odel for m onet ary policy analysis in Nigeria. That is, we int end t o conduct our analysis wit hin t he cont ext of a m icro founded DSGE Model.

Operat ionally , t his m odel is expect ed t o be solved using recent m et hods in com put at ional econom ics which m akes it feasible t o com put e higher order approxim at ions t o t he equilibrium condit ions in dy nam ic general equilibrium m odels. I ndeed, DSGE m odels are st ruct ural in t he sense t hat each equat ion has an econom ic int ervent ions and t heir t ransm ission m echanism can t herefore be clearly ident ified, t hereby facilit at ing a discussion of alt ernat ive policies. Again, DSGE m odels are m icro founded in t he sense t hat t hey are explicit ly derived from t he opt im izing behavior of households and firm s in t he econom y. Thus, t hey describe t he behavior of t he agent s in t he econom y in t erm s of param et ers t hat are st ruct ural because of t he fact t hat one would not expect t hem t o change as t he result of changes in econom ic policy ; t hereby validat ing t he analysis of alt ernat ive policies. DSGE m odels are equally st ochast ic in t he sense t hat t hey explicit ly discuss how random shocks such as fiscal policy affect t he econom y.

There m odels are also forward looking in t he sense t hat agent s opt im ize, form rat ional or m odel consist ent forecast s about t he fut ure evolut ion of t he econom y. However, a t radit ional weakness of DSGE m odels has been t he difficult y in param et erizing t hose using econom ic dat a. Part icular ly, t his problem is severe in African count ries such as Nigeria, where dat a series are short or ( in m any causes) lacking.

Thus, in order t o overcom e t his problem , research oft en r esort s t o calibrat ing t he par am et ers of t he m odel using inform at ion from

previous st udies or charact erist ics ( such as dat a volat ilit y) . Yet , t he difficult y of explicit ly relat ing t he m odel t o t he dat a seriously underm ines it s use. Therefore, in order t o overcom e t he problem of t he param et erising t he dat a, t his research paper will m ake use of recent advances in Bayesian Econom et rics. Wit hin t his fr am ework, t he kalm an filt er will be used t o allow inferences about t he unobserved variables in t he m odel and prior em pirical or t heoret ical knowledge about t he param et ers of int erest is used t o increase t he efficiency of t he est im at ion, t hereby overcom ing t he pr oblem of short dat a series.

Obviously , t he use for Bayesian inference allows us t o incorporat e prior em pirical or t heoret ical knowledge about our param et ers of int erest . Sim ilarly , Bayesian inference provides a nat ural fram ework for param et erising and evaluat ing sim ple m acroeconom ic m odels which are likely t o be fundam ent ally m isspecified.

Using Kollm an ( 2002) and Saxegaard ( 2006) t he basic st ruct ure of our open – econom y DSGE m odel consist s of perfect ly com pet it ive firm s t hat produce a final non- t radable good which is consum ed by a represent at ive household and t he fiscal aut horit ies ( in addit ion t o being used for invest m ent ) . Here t he input s used in t he produced dom est ically or im port ed by m ono polit ically com pet it ive int erm ediat e goods firm s. On t he ot her hand, t he dom est ically produced goods, which are produced using capit al, labor and borrowing from a financial int erm ediar y as input s, are sold eit her in t he dom est ic m ark et or export ed overseas. However, we assum e t hat t he capit al account is closed and t he m arket s for capit al, labor, and com m ercial bank loans are com pet it ive. I n order t o provide a rat ionale for m onet ary and fiscal st abilizat ion policy , four sources of inefficiency are included in t he m odel: Monopolist ically com pet it ive product m arket s; sluggish price adj ust m ent in t he dom est ic econom y; capit al adj ust m ent cost s and invest m ent adj ust m ent

cost s; and adj ust m ent cost s in com m ercial bank reserves and an int erest rat e spread which depends on t he net wort h of com panies.

I n fact , t his fram ework capt ures m any of t he rigidit ies t hat are im port ant t o describe t he dynam ics in t he dat a and serves as a useful st art ing point for developing a DSGE m odel for Nigeria.

The obj ect ive of t he consum er is t o m axim ize t he expect ed value of t he discount ed sum of period ut ilit y funct ions. Here, we assum e habit form at ion in consum pt ion and t hat capit al account is closed.

The consum er budget const raint and consum er’s problem are t herefore specified wit h relevant first order condit ions for consum pt ion, labor, m oney, deposit s, capit al and invest m ent .

The final good producers produce a good Zt by aggregat ing over a cont inuum of dom est ically and im port ed int erm ediat e goods, indexed by SE ( 0, 1) . Here, t he aggregat ing t echnology is given by t he CES aggregat e for som e elast icit y of subst it ut ion. However, profit m axim izat ion im plies t he st andard dem and funct ions for int erm ediat e goods wit h an associat ed cost – m inim izing price index.

I n t his block, we incorporat e learning by doing in t he product ion funct ion as well as credit const raint s. The credit const rains are incorporat ed by assum ing t hat int erm ediat e good firm s use an int erm ediat e good input t hat is funded by borrowing from a financial int erm ediary. Equally, we assum e t hat firm s borrow t o pay for

HOUSE HOLD BEHAVI OR BLOCK

FI NAL GOODS PRODUCTI ON BLOCK

I NTERMEDI ATE GOODS PRODUCTI ON BLOCK

int erm ediat e goods input s as opposed t o wages or capit al because it is equivalent t o using t he loan as a variable in t he product ion funct ion and it generat es m ore dynam ics in t he m odel. Here, t he product ion t echnology is Cobb Douglas and we assum e product iv it y t hat is affect ed by bot h t he size of t he t radable sect or and am ount of governm ent expendit ure on capit al goods. Again, we allow product iv it y t o follow a st ochast ic aut oregressive process and specified funct ion em bodies t he t echnology whereby governm ent spending on invest m ent goods produces t he product ivit y enhancing public good. I t also sat isfies and capt ur es t he degree of learning by doing.

Therefore, t he problem facing t he firm is t o m inim ize cost s subj ect t o sat isfy ing dem and while assum ing for t he m om ent t hat t he firm t akes prices as giv en. On t he ot her hand, we assum e t hat each dom est ic firm sells it s out put bot h on t he dom est ic and export m arket good had t he sam e st ruct ure as dom est ic dem and.

The int erm ediat e goods producers faces quadrat ic adj ust m ent cost s in set t ing prices m easured in t erm s of t he int erm ediat e good. Here, we assum e t hat t he cost of price adj ust m ent is relat ed t o t he change in inflat ion relat ive t o t he past observed inflat ion rat e.

Essent ially , t his allows for m ore realist ic inflat ion dynam ics in t he m odel wit h a backward- looking t erm in t he solved out Phillips Curve. Again, we assum e t hat t he law of one price holds in t he export m arket and im port ing firm s are assum ed t o be owned by risk – neut ral foreigners who purchase goods at t he exogenous world price and re- sell t hem in t he dom est ic m arket . On t he ot her hand, we assum e t hat changes in t he exchange rat e are passed t hrough

I NTERMEDI ATE GOODS PRODUCERS: PRI CE SETTI NG BLOCK

im m ediat ely t o t he im port price given shock t o t he t erm s of t rade of t he econom y.

I ndeed, t he financial sect or is assum ed t o convert deposit s from households int o loans t o int erm ediat e goods firm s and t he public sect or bank reserves.

Thus, for a given level of bank reserves, an increase in t he am ount of deposit s at t he financial int erm ediary reduces t he am ount of m oney in circulat ion as well as t he ut ilit y from liquidit y services.

Here, deposit s are assum ed t o earn t he sam e rat e of int erest as t he int erest on governm ent bonds. Again, lending t o int erm ediat e good firm s earns an int erest which is a m ark up over t he int erest rat e on deposit s where t he m arkup is a funct ion of firm s beginning of period net wort h ( t he value of t heir capit al st ock over t heir liabilit ies) . Com m ercial banks are also assum ed t o m aint ain reserves equal t o required reserves in st eady – st at e and t o use reserves t o sm oot h m ovem ent s in t heir net liabilit ies.

Operat ionally , t he cent ral bank s balance sheet is

∆Mtc + ∆Rt =

e

Where

e

Bt + 1 are governm ent securit ies held by t he cent ral bank m at uring

next period we furt her assum e t hat no int erest is earned on int ernat ional reserves; and under t he assum pt ion t hat profit s of t he

FI NANCI AL I NTERMEDI ARY BLOCK

PUBLI C SECTOR BLOCK

cent ral bank are t ransferred t o t he fiscal agent t he public sect or’s budget const raint t akes t he form :

∆Bt + 1 + ∆Btp

+ 1 = PtGt + it - 1 Btp

- Tt -

e

Where At is aid and Btp

are bonds issued t o t he financial sect or which we assum e earn t he sam e rat e of int erest as household deposits. Here, a share μi of governm ent spending is spent on a product iv it y enhancing invest m ent good:

Gt = μt Gtk

+ ( 1 - μt) Gtc

( 3.3)

Then consolidat ed budget const raint is t hen:

M to + Btp

+ 1 -

e

+ 1 + ( 1 + it - 1) + Btp -

e

e

Where M to

is base m oney defined as M to

= M tc

+ R t

As such, volat ilit y in aid inflows and int erest paym ent s on bonds issued t o t he financial sect or t ransm it s int o volat ilit y in t he pat h of expect ed fut ure seigniorage ( like currency in circulat ion) .

Operat ionally , in t his m odel, t he fiscal and m onet ary aut horit ies have access t o four different inst rum ent s of which t hree can be used independent ly . Here, t he fiscal agent cont rols gov ernm ent spending, t axat ion and net dom est ic borrowing while t he m onet ary aut horit y cont rols t he level of int ernat ional reserves. Consequent ly, we can analyze t he fiscal policy rules of t he form :

Tt= T- ( 1 - ∫) ω (

e

e

PtGt = PG+ ∫ ω (

e

e

Where ω and ∫ determine the fraction of aid used to reduce taxes and increase expendit ure and t hus incr ease t he prim ary fiscal deficit ( before grant s) .

A ω less than one unambiguously lower t he prim ary deficit aft er grant s.

If ω equals zero, the primary deficit after grants falls by the amount of aid.

If ω is between zero and one so that part of the aid is spent, ∫ det erm ines t he allocat ion of t hat spending bet ween t he privat e and public sect or

I f ∫ equals zero, the increased spending is carried out by the governm ent whereas

I f ∫ is one, the increased spending is done by the private sector.

We furt her assum e t hat t he fiscal regim e rem ains unchanged and is fully spent . Yet , t he effect of a shock t o aid on int ernat ional reserves and t he m onet ary base will depend on t he act ions of t he cent ral bank . Using t he specificat ion of t he cent ral bank policy rules, foreign exchange rat e int ervent ion is governed by

∆Zt = Zt ( Z - Zt - 1) + ( 1 – Z2 ω) ( At - A) + Z3 log

e

e

╥ / ╥x + Z4 log ╥t + Ut2

(3.6) ╥

Where Z1 governs the authorities’ commitment to a constant level of reserves

Z2 determines the commitment to an absorb as you sp0end scenario whereby the sale of foreign exchange is conducted in line with government spending increases financed by the aid inflows

Z3 Determines the extent to which the sales of foreign exchange reserves are used to achieve a given target of the inflation rate

╥.

Ut2

I s a shock t o foreign currency reserves.

Therefore, any foreign exchange rate intervention will have an impact on the monetary base and the exchange rate with possible implications for inflation and output volatility. Here, the authorities have the option of conducting open-market operations on a temporary basis and thus we have:

∆Btp

= b1

e

Yt - r – Y + b4 B^pt – 1 + UtB

╥

Where b1 governs t he ext ent t o which bond operat ions ar e used t o st erilize t he im pact of foreign exchange int ervent ions on t he m onet ary base;

B2 det erm ines t he com m it m ent t o t he inflat ion t arget ;

B3 Governs t he effect of out put gap considerat ions in t he conduct of m onet ary policy

B4 > O ent ails t hat all bond operat ions are unwound over t im e

UtBP

I s a shock t o dom est ic bonds

I n general equilibrium , supply equals dem and in t he int erm ediat e and final goods m arket at post ed prices. Yet , t he m odel can alt ernat ively be closed using t he balance of paym ent s ident it y.

MARKET CLEARI NG / AGGREGATI ON

STOCHASTI C SHOCKS

Essent ially , a num ber of st ochast ic shocks are included in t he m odel in order t o ensure t hat t he m odel is not st ochast ically singular and in order t o be bet t er able t o reproduce t he dynam ics in t he dat a.

Specifically, t he num ber of exogenous shocks m ust be at least as large as t he num ber of observed variables in order t o est im at e t he m odel using classical m axim um likelihood or Bayesian m et hods.

Wit h t he except ion of t he shock t o t he m arkup ( w hich is assum ed t o be whit e noise process) all shocks ar e assum ed t o follow a first order process.

4.0 D ATA SOURCES AN D COLLECTI ON

Operat ionally , t he m aj or sources of dat a for t he proposed st udy will be t he published dat a of t he cent ral bank of Nigeria as well as t he unpublished dat a from t he various m inist ries, parast at als and agencies in Nigeria.

Ot her supplem ent ary sources of dat a will include t he st at ist ical publicat ions of t he World Bank, Unit ed Nat ions and I nt ernat ional Monet ary Fund. Here, effort s will be m ade t o collect annual dat a on t he variables of t he research st udy. We shall also search t he various int ranet s, ext ranet s and int ernet websit es accordingly .

5.0 RESEARCH RESULTS AN D D I SSEM I N ATI ON

Essent ially , t he result out put is expect ed t o cont ribut e t o public policy m aking for cent ral bank of Nigeria, Federal Minist ry of Finance, Nat ional Planning Com m ission, Nat ional Assem bly Com m it t ees and Allied Minist ries. This is in addit ion t o cont ribut ing t o exist ing k nowledge and fut ure Research in t he econom ics of dynam ic st ochast ic general equilibrium m odel. Also, we int end t o publish our research out put ( especially in REPEC and SSRN Net work Out let s) as well as dissem inat ing t o t he various professional econom ics and policy m akers in t he region. We shall equally present and discuss our research findings before t he various academ ic and professional econom ist s’ net work m eet ings.

6.0

This st udy is expect ed t o be carried out wit hin a period of t went y m ont hs. I n t he first six - m ont hs, w e shall be concerned wit h lit erat ure explorat ion, collect ion and review. I n t he subsequent five m ont hs, t he m odel dat a w ill be collect ed and analyzed using STUD Y D URATI ON AN D BUD GET

com put ing t echnology. I n t he last six m ont hs, t he st udy will be com plet ed and subm it t ed t o t he funding agency as appropriat e.

Operat ionally , t he expect ed cost s of t he research proj ect are as follows:

( A) PERSONNEL COSTS ( PRI NCI PAL RESEARCHER

AND SUPPORT STAFF) = $5,000.00

( B) FI ELD WORK COST ( LI TERATURE SEARCH DATE

BATHERI NG AND COMPUTI NG RESOURCES) = $9,000.00

( C) MATERI ALS AND SUPPLI ES ( OFFI CE MATERI AL

PRI NTI NG AND COMMUNI CATI ONS) = $2,500.00

( D) FI NAL REPORTS REPRODUCTI ON

( PRODUCTI ON AND DI SSEMI NATI ON) = $2,500.00

( E) MI SCELLANEOUS EXPENSES = $1,000.00

( F) TOTAL BUDGETED EXPENSES = $ 2 0 ,0 0 0 .0 0

7.0 TEN TATI VE STUD Y OUTLI N E

SECTI ON ONE: I NTRODUCTI ON ( I .I ) RESEARCH PROBLEM

( I .2) OBJECTI VES OF STUDY ( 1.3) SI GNI FI CANCE OF STUDY ( 1.4) STUDY COVERAGE

( 1.5) ORGANI ZATI ON OF STUDY

SECTI ON TWO: ECONOMI C POLI CI ES AND PERFORMANCE

( 2.1) GLOBAL ECONOMY PERSPECTI VES ( 2.2) AFRI CAN ECONOMY REVI EW

( 2.3) NI GERI AN ECONOMY REVI EW

SECTI ON THREE: LI TERATURE REVI EW AND THEORETI CAL FRAMEWORK ( 3.1) THEORETI CAL LI TERATURE

( 3.2) EMPI RI CAL LI TERATURE ( 3.3) THEORETI CAL FRAMEWORK

SECTI ON FOUR: METHODOLOGI CAL FRAMEWORK ( 4.1) RESEARCH METHOD

( 4.2) MODEL SPECI FI CATI ON

( 4.3) MODEL ESTI MATI ON AND SOLUTI ON ( 4.4) DATA NEEDED AND SOURCES

SECTI ON FI VE: ANALYSI S OF RESULTS ( 5.1) MODEL CAUBRATI ONS

( 5.2) MODEL SI MULATI ONS ( SLENARI VS) ( 5.3) SENSI TI VI TY ANALYSI S

( 5.4) POLI CY I MPLI CATI ONS

SECTI ON SI X: SUMMARY, CONCLUSI ONS AND RECOMMENDATI ONS ( 6.1) SUMMARY AND CONCLUSI ONS

( 6.2) POLI CY RECOMMENDATI ONS ( 6.3) STUDY LI MI TATI ONS

( 6.4) FUTURE RESEARCH I NDI CATI ON

NOTES, BI BLI OGRAPHY AND APPENDI XES

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