Fiscal and Monetary Policy Adjustment and Economic Freedom for Poverty Alleviation

Abstract

This study is an empirical analysis of policy preferences in the control of poverty in Nigeria. It uses annual data between 1980 and 2019 to construct a Vector Error Correction Model (VECM) and simulate Forecast Error Variance Decomposition to explain the role of economic freedom, fiscal and monetary policy in poverty alleviation. Fundamental policy issues arising from the results include the favoring of expansionary fiscal policy to mitigate poverty, and the same hold for monetary policy. But monetary policy is less effective than the fiscal policy. However, expansionary fiscal-monetary policy mix worsens poverty. Also, alone, a high degree of economic freedom deepens poverty. Further, a policy juxtaposition of expansionary fiscal policy and more degree of economic freedom exacerbates poverty. Lastly, a concurrent expansionary monetary policy and an improved degree of economic freedom reduce poverty. The findings are applicable in the short run and long run.