International capital flows and monetary policy reaction in Nigeria : are there asymmetric effects?

This paper examines the monetary policy response to fluctuations in international capital flows to Nigeria. This study improves on previous studies by employing the recent asymmetric ARDL approach to examine whether capital flow fluctuations have symmetric or asymmetric effects on monetary policy reaction in both the short- and long-run for the period 2000Q1-2018Q4. The estimated results revealed that positive and negative components of capital flows as well as other explanatory variables have statistically significant effects on the behaviour of monetary policy both in the short- and long- run. The implication of the results is that different monetary sterilization index is required for managing the inherent pressure that can emanate from asymmetric capital flows. Hence, this may explain the continuous adjustment of monetary policy in order to attract foreign capital flows, facilitate stable prices and exchange rate as well as accretion to foreign reserves.