ASSESSING INFLATION TARGETING IN NIGERIA: AN APPLICATION OF BAYESIAN ESTIMATED MODEL

Abstract

Inflation targeting (IT) is the band at which consumer price index is permitted to fluctuate,
ensures price stability and economic growth sustainability. This paper concentrates mainly
on the IT aspects of the Dynamic Stochastic General Equilibrium Model (DSGEM) using
Bayesian estimation technique, to evaluate the effectiveness of Inflation targeting of the
Bank (CBN), at both the theoretical and empirical levels and as policy ingredient. The
question of whether adopting IT makes a difference in the fight against inflation was
addressed. The results of the analyses show that domestic and foreign demand shocks are
the most influential factor in affecting domestic variables in Nigeria. Nigerian inflation,
however, appears to be most sensitive to domestic supply, money supply, interest rate shocks
and nominal exchange rate shocks. Lastly, the findings indicate that the impact of domestic
monetary policy shocks appears to be moderate