Monetary Policy, Sub-National Inflation Dynamics and Regional Spillovers in Nigeria

Abstract

This study evaluates the relationship between monetary policy shocks and sub-national inflation dynamics in Nigeria, using the SVAR framework. Furthermore, using the Diebold-Yilmaz (DY) methodology, it also examines the extent of inflation volatility spillovers among the regions. Results show that monetary policy shock generates a heterogeneous but insignificant influence on sub-national inflation in Nigeria. We also found substantial evidence of spillovers among the regions. The South-West, North-East and South-East regions were found as the only resilient regions and net transmitters of inflation volatility to other regions, while the South-South was the most vulnerable region, especially to shocks from the South-East. These findings suggest that an exogenous monetary policy shock is not sufficient to address sub-national inflation dynamics in Nigeria. Rather, a well-targeted policy may be required to address the challenge, including strengthening inter-regional network connectivity and addressing persistent insecurity challenges that have stamped its roots in the North-East and South-East regions.