Fiscal and Monetary Policy Adjustment and Economic Freedom for Poverty Alleviation in Nigeria

This study presents an empirical analysis of policy choices for poverty control in Nigeria. Using annual data from 1980 to 2019, we constructed a Vector Error Correction Model (VECM) and simulated Forecast Error Variance Decomposition (FEVD) to explain the role of economic freedom, fiscal policy, and monetary policy in poverty alleviation. The results reveal that expansionary fiscal and monetary policies can mitigate poverty in Nigeria. However, monetary policy is found to be less effective than fiscal policy. Additionally, an expansionary fiscal and monetary policy mix worsens poverty. Moreover, a high degree of economic freedom, by itself, increases poverty. Furthermore, the results suggest that a policy combination of expansionary fiscal policy and a greater degree of economic freedom exacerbates poverty. Finally, concurrent expansionary monetary policy and an improved degree of economic freedom can reduce poverty. These findings are applicable in both the short and long term.