A small macroeconometric model of the Nigerian economy

This study develops and uses for forecast a small-scale macro-econometric model of the Nigerian economy. The effects of three policy scenarios built around the assumptions of the changes that the Central Bank of Nigeria is likely to make to the Monetary Policy Rate are proposed and analyzed. Trade-off among the scenarios is identified in terms of their potential impacts on key macroeconomic indicators like inflation, exchange rate, output and lending rate. The results show that the monetary authority has to make a choice between the objectives of maintaining a stable exchange rate and lowering the lending rate. •The model is a small, dynamic open-economy linear representation of an economy.•The decision of the Nigerian monetary authority had been at best ad-hoc in nature.•It is now a common practice for Central Banks to maintain and utilize a suite of models.•Trade-offs among the scenarios are identified in terms of their potential impacts.•The model provides a more formal and rigorous approach to policy analyses.