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UNEMPLOYMENT HYSTERESIS IN NIGERIA: Any Role for Monetary Policy?

UNEMPLOYMENT HYSTERESIS IN NIGERIA: Any Role for Monetary Policy?

 

Abstract: This study investigates hysteresis in unemployment in Nigeria and examines the role that monetary policy plays in the persistence level of unemployment in the country. The technique of analysis is the structural vector autoregression (SVAR), and the annual time series data set used spans 1970-2013. Monetary policy is accommodated within the backward-looking Phillip curve proposed by Friedman (1968) to relate the new forward-looking Phillip curve advanced by Ball (1999, 2009). Series of descriptive statistics are used coupled with unit-root and stationarity tests that suggest the persistence level of unemployment in Nigeria. The unemployment hysteresis is also confirmed within the SVAR framework, going by the effect that the actual unemployment rate has on its equilibrium level. The results from the SVAR models further show that better compensation packages will reduce the spate of unemployment in Nigeria, and thus a need for labour market reform. Also, it was observed that the inflation-targeting objectives of the Central Bank of Nigeria for the period under review have not hampered sustainable employment generation but that the spate of money supply, and consequently the aggregate demand have reduced the level of unemployment, albeit insignificantly. Hence, monetary policy is found to play a non-neutral but insignificant role in the long-run situation. This submission of money non-neutrality is confirmed by the Multivariate Block Exogeneity Wald test.

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