Fiscal–Monetary Policy Asymmetric Effects on Industrial Output in Nigeria: An Empirical Analysis

Abstract

This study examines the asymmetric effects of fiscal and monetary policies on industrial output in Nigeria between 1981 and 2023. Employing the nonlinear autoregressive distributed lag (NARDL) framework, it disentangles the differential impacts of positive and negative shocks in government expenditure, government revenue, interest rates, and broad money supply. The findings reveal strong asymmetries: while fiscal expansions through government expenditure exert contractionary pressures, fiscal contractions in both expenditure and revenue stimulate industrial growth in the long run. Monetary policy effects are also uneven, as interest rate reductions fail to support output, whereas monetary expansions via broad money supply consistently enhance industrial performance. These results underscore the importance of coherent policy coordination, suggesting that fiscal discipline coupled with sustained monetary expansion is more effective than conventional expansionary fiscal spending and interest rate adjustments in driving industrial growth. The study therefore recommends that policymakers prioritise prudent expenditure management, broaden and stabilise government revenue, and implement growth-friendly monetary policies that ensure adequate credit flows to the industrial sector.