Estimating asymmetries in monetary policy reaction function: an oil price augmented Taylor type rule for Nigeria under unconventional regime

Domestic monetary conditions are often cited as a driver of monetary stimulus. This paper estimates an oil price augmented forward-looking reaction function for Nigeria's unconventional monetary policy. It investigates its short-run and long-run asymmetric sensitivity with respect to the expected inflation, output gap, and oil price using data over the period 1995Q1 to 2021Q2. The results suggest that the Central Bank of Nigeria has an asymmetric reaction function and largely reflects oil price shock when taking decisions on the use of unconventional measures (credit easing policy). This finding confirmed the preference and reaction function of the monetary policy toward assessing the current stance and the future direction of monetary policy. Policy implications for these findings are also examined.