MODELLING THE EFFECT OF THE CENTRAL BANK BALANCE SHEET POLICY ON DISAGGREGATED INFLATION IN NIGERIA: A NON-LINEAR ARDL APPROACH

Abstract

Since the onset of the global financial crisis, the central banks have deployed a wide array of unconventional monetary policy measures (including balance sheet policy) to support financial stability, provide further monetary policy accommodation or limit potential adverse effects from international capital flows. Several studies have been conducted on the subject matter but less attention has been given to the effect of the unconventional balance sheet policy on disaggregated inflation.  The current study specifically investigates the effects of the unconventional CBN balance sheet policy on disaggregated inflation (changes in prices of Food & Non-Alcoholic Beverages; Housing Water, Electricity, Gas & Other Fuel; Clothing & Footwear; Transportation and Furnishing & Household Equipment Maintenance) in Nigeria for the period 1999 to 2020. Employing the recently developed Non-linear Autoregressive Distributed Lag (NARDL) model, the study showed some far reaching results as against the use of aggregate inflation. Specifically, the results showed that the central bank balance sheet expansion policy has long run positive and significant effect on food and non-alcoholic beverages inflation, housing, water, electricity, gas and other fuel inflation and transport inflation. This would inform policy decision as to which sector of the economy to invest the intervention funds of the Central Bank of Nigeria to enhance price stability, support economic growth and generate employment in the economy.