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Title: INFLATION TARGETING CENTRAL BANKS RESPONSE TO ASSET PRICE FLUCTUATION: A NIGERIAN PERSPECTIVE ON THE ISSUES OF ASSET PRICES, INFLATION AND BUSINESS CYCLE
Authors: ALAKA, Adedayo; UCHEAGA, Emeka Gerald; ADU, Omobola
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1ALAKA, Adedayo; 2UCHEAGA, Emeka Gerald; 3ADU, Omobola 1Department of Banking and Finance; Yaba College of Technology, Yaba, Lagos State, Nigeria. 2Department of Banking and Finance; Studies, College of Business and Social Sciences, Covenant University, Ota, Ogun State, Nigeria. 3Department of Economics and Development Studies; College of Business and Social Sciences, Covenant University, Ota, Ogun State, Nigeria.
MLA 8 Adedayo, ALAKA,, et al. "INFLATION TARGETING CENTRAL BANKS RESPONSE TO ASSET PRICE FLUCTUATION: A NIGERIAN PERSPECTIVE ON THE ISSUES OF ASSET PRICES, INFLATION AND BUSINESS CYCLE." Int. j. of Social Science and Economic Research, vol. 3, no. 4, Apr. 2018, pp. 1257-1270, ijsser.org/more2018.php?id=90. Accessed 2018. APA Adedayo, A., Gerald, U., & Omobola, A. (2018, April). INFLATION TARGETING CENTRAL BANKS RESPONSE TO ASSET PRICE FLUCTUATION: A NIGERIAN PERSPECTIVE ON THE ISSUES OF ASSET PRICES, INFLATION AND BUSINESS CYCLE. Int. j. of Social Science and Economic Research, 3(4), 1257-1270. Retrieved from ijsser.org/more2018.php?id=90
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Abstract: Wealth transmission effect in economics states that as households' wealth increase, consumption will also rise but at a less proportionate increase than the increase in wealth. Thus, Central Bankers have long assumed that asset prices and consumer price inflation share a positive relationship. However, the paper disputes this hypothesis. This paper seeks to examine the relationship between asset prices and inflation so as to recommend the appropriate monetary policy response for an inflation targeting Central Bank during an asset price boom considering its risk to inflation. Secondary data was obtained from World Bank World Development Indicators 2016 and CBN Statistical Bulletin 2016. The study employs the Hodrick-Prescott filter, Granger causality test and the Impulse Response Function for data analysis. The study found that the cross-correlation between the All Share Index and Consumer Price Inflation is countercyclical. The study also found that the All Share Index Granger causes inflation after two lags at 5 percent level of statistical significance. This implies that as the stock market price increases, inflation tends to fall. This study recommends that asset prices should be integrated into the core monetary policy framework since they are useful predictors of near future inflation rate.

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