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Monetary and Fiscal Policy in the Presence of Informal Labour Markets: A DSGE Approach

Adu, Omobola and Alege, P. O. and OLURINOLA, Isaiah Oluranti (2021) Monetary and Fiscal Policy in the Presence of Informal Labour Markets: A DSGE Approach. Research in World Economy, 12 (1). pp. 213-225. ISSN 1923-3981 E-ISSN 1923-399X

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In this paper, we investigate the transmission mechanism of monetary and fiscal policy shocks on inflation and output in the presence of an informal economy in Nigeria. To achieve this, a New Keynesian Dynamic Stochastic General Equilibrium (DSGE) model is modified to include informality in the labour and product market. The model is estimated using the Bayesian technique and the findings shows that in the case of a monetary policy shock, formal output tends to decline, while there is an expansion in informal output, at least in the short-run. The results also reveal that a fiscal policy shock brings about an initial decline in informal output. Hence, it is imperative for policymakers to strive to formalise the informal sector in order to ensure the effectiveness of monetary policy

Item Type: Article
Uncontrolled Keywords: informal economy, DSGE, bayesian estimation
Subjects: H Social Sciences > H Social Sciences (General)
H Social Sciences > HB Economic Theory
Divisions: Faculty of Law, Arts and Social Sciences > School of Social Sciences
Depositing User: nwokealisi
Date Deposited: 12 Jan 2024 15:14
Last Modified: 12 Jan 2024 15:14

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