Economic sustainability and the role of fiscal and monetary policies in a depressed economy: The case of Nigeria

In recent years, most developing countries have embarked on some kind of reform programme. At the heart of such programmes are orthodox demand management policies aimed at reducing inflation, relieving the pressure on the balance of payments and improving the level of output in the long term. Prominent among these sets of policies are monetary and fiscal policies. However, the relative effectiveness of these policies is an issue that has continued to generate both academic and policy interests. This study reveals that for the Nigerian economy fiscal policy is more effective than monetary policy for getting the country out of economic depression. Specifically, given the role assigned to the use of government expenditure in the study, government must formulate appropriate policies with regard to its mix of current/capital expenditure, subsidies and transfers and its massive expenditure projects that are neither productive nor efficient in the long term.