Abstract

This article uses a dynamic, dual-economy general equilibrium model that is adapted and modified to suit Nigeria’s situation to analyze the long-run effect of monetization policy on the Nigerian economy.  The model provides a complete analysis of how output equation using Generalized Moments Method (GMM) variations affect aggregate consumption expenditure, investment, capital stock, labor, job cuts and public sector wages plus monetization evolve during the adjustment process. The main policy message conveyed by the results is that the monetization policy is important in influencing certain targets macro-economic variables. The empirical evidence shows that public sector wages plus monetization has the highest speed of adjustment towards output in the long-run when compared with other explanatory variables. This is further complemented in the public sector wages plus monetization equation which has output variable as the strongest and most significant and correctly sign. There is a strong presumption that increases public sector wages plus monetization for public servants produce job-cuts, the empirical results attest to this fact, in that the current implementation of monetization policy affects employment negatively.  Specifically, 10% reduction in job cut in the long-run will results in output reduction of 2%.

Key words: Monetization, fridge benefits, income policy, wages, public and private sector, salaries and allowances.