DYNAMICS OF MONETARY POLICY, FINANCIAL DEVELOPMENT, AND INCOME INEQUALITY IN NIGERIA: EMPIRICAL PERSPECTIVE

Abstract

This study empirically investigated the nexus between monetary policy, financial development and income inequality in Nigeria. Annual time series data on monetary policy, financial development indicators and income inequality were sourced from the Central Bank of Nigeria (CBN) statistical Bulletin and the Standardized World Income Inequality Database . The Vector Autoregression Model (VAR) model was employed as the analytical technique and the variance decomposition result revealed that monetary policy is more sensitive to shocks from the financial sector while the financial sector and income inequality are mostly driven by shocks emanating from each other The impulse response result revealed that income inequality is positively driven by changes in monetary policy and financial development while the response of monetary policy to financial development is sensitive to the financial development indicator employed. The study recommends that to curtail income inequality, monetary and financial sector stability must be prioritized by the monetary authorities

in Nigeria.