Inflation Targeting, Monetary Policy Credibility, and Macroeconomic Performance in Nigeria

The adoption of inflation targeting as a monetary policy framework has been associated with improved macroeconomic performance in numerous countries through the mechanism of enhanced central bank credibility and anchored inflation expectations. This study examines whether the Central Bank of Nigeria's movement toward an inflation-targeting-adjacent framework has contributed to improved monetary policy credibility and macroeconomic performance. Credibility is assessed through measures of inflation expectation anchoring derived from the Central Bank of Nigeria's inflation expectation survey data, the deviation of actual inflation from implicit targets, and the responsiveness of long-term bond yields to monetary policy announcements. Macroeconomic performance is evaluated using real output growth, inflation volatility, and exchange rate stability. Time-series data from 2015 to 2023 are analysed using a structural vector autoregression with identified monetary policy shocks and a regime-switching model that captures shifts in the policy framework. The theoretical framework draws on the time inconsistency problem in monetary policy, the credibility-sacrifice ratio literature, and the inflation targeting design principles developed by Bernanke and Mishkin. A key research question concerns whether the Central Bank of Nigeria's institutional independence constraints, particularly its history of direct government financing, have limited its ability to build credibility through a consistent policy framework. Existing literature identifies credibility deficits as a key driver of inflation persistence in Nigeria, but high-frequency credibility measurement approaches have not been applied in the Nigerian context. Findings are intended for the Central Bank of Nigeria's Monetary Policy Committee and for scholarly debate on monetary policy design in African frontier markets. Keywords: inflation targeting, monetary policy credibility, Central Bank of Nigeria, inflation expectations, macroeconomic performance