A Bayesian Estimation of DSGE Model for the Nigerian Economy

This paper develops and estimates a small open economy dynamic stochastic general equilibrium(DSGE) model for the Nigerian economy using the Bayesian technique. We include a number of frictions, rigidities, and shocks in our model. The results show a considerable evidence of price stickiness in Nigeria. Furthermore, the results suggest that the forward-looking component dominates price setting behaviour in Nigeria. Moreover, the findings indicate that external shocks such as external debt, exchange rate and foreign inflation shocks largely influence output fluctuations in Nigeria while inflation is driven by money supply, productivity, nominal exchange rate and domestic interest rate shocks. Lastly, the findings indicate that the monetary authority responds strongly to real exchange rate shocks.