Monetary Policy Reaction Function: Evidence from the Voting Dynamics of Monetary Policy Committee in Nigeria (2006-2015)

The substance of this paper resides in estimating the monetary policy reaction function for the Central Bank of Nigeria. A Taylor type rule was estimated using the quarterly data from 2006Q4 to 2015Q2. The generalized method of moment was use to estimate the baseline model and an open economy model. The result showed that the central bank follows a forward looking policy rule and commits to an anti-cyclical monetary policy with a forward-looking behavior of a not more than a single quarter into the future. In addition, the central bank places more weight on maintaining exchange rate targets over employment. The bank also appears to be conscious of interest rate smoothing, probably with a view to maintain the path of its long-run interest rate. The paper concludes that the estimates of the open economy forward-looking monetary policy reaction function appear to hold promise in explaining the monetary policy in Nigeria during the period under review.