International Journal of Social Science & Economic Research
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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

References
[1]. Airaudo, M., Nistico, S., & Zanna, L.-F. (2015). Learning, Monetary Policy and Asset Prices. IMF Working Paper , 1-32.
[2]. CBN. (2016). Statistical Bulletin A. Abuja: Central Bank of Nigeria.
[3]. Filardo, A. (2000). Monetary Policy and Asset Prices. Federal Reserve Bank of Kansas City Economic Review , 11-37.
[4]. Gilchrista, S., & Leahy, J. (2002). Monetary Policy and Asset Prices. Journal of Monetary Economics , 75-97.
[5]. Keynes, J. M. (1936). The General Theory of Employment, Interest and Money. London: Macmillan and Co.
[6]. Selody, J., & Wilkins, C. (2004). Asset Prices and Monetary Policy: A Canadian Perspective on the Issues. Bank of Canada Review, 3-14.
[7]. Vickers, J. (2000). Monetary Policy and Asset Prices. The Manchester School, 1-22 .
[8]. Yao, S., Dan, L., & Loh, L. (2013). On China's Monetary Policy and Asset Prices. Applied Financial Economics, 377-392.

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.