State-Dependent Effects of Oil Price Shocks on Inflation Dynamics: Comparing Monetary and Inflation Targeting Frameworks in Nigeria
Year: 2026
Type: article
Abstract: This study examines the comparative effects of monetary targeting and inflation targeting frameworks on Nigeria’s inflation dynamics, incorporating the role of crude oil price shocks through a regime-switching analysis. Using monthly data from January 2010 to August 2024, the study employs a Markov Switching Model to capture the behavior of headline inflation under two distinct regimes: Monetary Targeting Framework (MTF) and Inflation Targeting (IT). The results reveal significant differences in inflationary outcomes between the two frameworks. During the MTF regime, crude oil price shocks exhibit a contractionary effect, mitigating inflation but contributing to recessionary tendencies. In contrast, under the IT regime, oil price shocks amplify inflationary pressures, reflecting an economic expansion driven by demand-supply imbalances. Moreover, the IT regime demonstrates superior inflation management, with reduced volatility and a higher probability of persistence. These findings highlight the advantages of the inflation-targeting framework for macroeconomic stability in oil-dependent economies. Policy recommendations advocate for adaptive monetary policies that consider oil price fluctuations to strengthen economic resilience.
Source: Economic Analysis Letters
DOI: 10.58567/eal05030003
Author: richard umeokwobi
Language: English
Domain: Social Sciences
Open Access status: hybrid
OpenAlex ID: W7165141120