Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/142056
Authors: 
Aliyu, Shehu U. R.
Year of Publication: 
2012
Citation: 
[Journal:] CBN Journal of Applied Statistics [ISSN:] 2476-8472 [Publisher:] The Central Bank of Nigeria [Place:] Abuja [Volume:] 3 [Year:] 2012 [Issue:] 1 [Pages:] 17-41
Abstract: 
This paper seeks to assess the reactions of Nigeria's stock market to monetary policy innovations during the period of global financial crisis on the basis of monthly data over the period January, 2007 to August, 2011. In particular, stock market return was regressed against major monetary policy instruments; money stock (M1, and M2) and monetary policy rate (MPR). The theoretical basis for the paper stems from the works of new classical macroeconomics and rational expectation hypothesis (REH). Lucas (1972) postulated that only the unanticipated monetary shock influences real economic activity. Using the GARCH by developed Engle and Bollerslev (1986) and EGARCH by Nelson (1991) methodologies, the paper empirically assessed the impact monetary policy innovations exerts on stock returns in the Nigeria's Stock Exchange (NSE) market during the period of the crisis. Results from the empirical analysis revealed that the unaticipated component of policy innovations on M2 and MPR exerts distabilizing effect on NSE's returns, whereas the anticipated component does not. This lends support to the REH argument for the Nigerian stock market. The pqper strongly recommends realistic and timely policy pronouncements by the MPC to achieve stability in the market.
Subjects: 
Monetary Policy
GARCH
EGARCH
Rational Expectation Hypothesis
JEL: 
E44
E52
G01
Document Type: 
Article

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