Spillover Effects of US Monetary Policy and Macreconomic Conditions in Nigeria: Evidence from Time-Varying Parameter Structural Vector Autoregression (TVP-SVAR)
Purpose: This paper examines the effect of U.S monetary policy spillovers on macroeconomic conditions in Nigeria by estimating a time-varying parameter-VAR (TVP-VAR). Design/methodology/approach: The model is applied mainly due to its ability to capture possible nonlinearities and stochastic volatility of real and financial variables used. The impulse response of Nigeria’s GDP, CPI inflation, exchange rate and monetary policy to U.S monetary policy proxy by shadow policy rate reveals that the effect on GDP and CPI inflation in Nigeria vary across the three major phases of U.S monetary policies (conventional, unconventional, and normalization). Findings: While the effect appeared to be positive during conventional monetary policy phase, evidence of beggar-thy-neighbour was found during unconventional and monetary policy normalization phases. The negative effect appears to be more significant and last longer than the positive effect. We, therefore, conclude that U.S monetary policy substantially explains the cyclical fluctuations in the Nigeria economy. Practical implications: The results may be used by the macroeconomic policy-makers in their attempt to capture U.S. monetary policy spillovers on macroeconomic conditions in Nigeria.