Multidimensional Policy Volatility and Economic Growth in Nigeria: Short-Run Dynamics and Long-Run Equilibrium Relationships

Macroeconomic policy uncertainty remains a major challenge to economic growth in Nigeria, where fluctuations in monetary conditions, government fiscal operations, trade openness, and exchange rates can influence investment decisions, production costs, and aggregate demand. This study examines the short-run dynamics and long-run equilibrium relationships between multidimensional policy volatility and economic growth in Nigeria. Specifically, it evaluates the effects of monetary policy rate volatility, money supply volatility, government expenditure volatility, government revenue volatility, trade openness volatility, and exchange-rate volatility on economic growth. The study adopts an autoregressive distributed lag (ARDL) framework to distinguish immediate and lagged effects from long-run relationships. The reported estimates reveal that monetary policy rate volatility has a negative and statistically significant association with growth in both the short and long run, whereas money supply volatility has a positive and statistically significant association in both periods. Government expenditure volatility has a negative significant lagged short-run effect but a positive significant long-run relationship with growth. Government revenue volatility exhibits a positive and significant long-run relationship, although its reported short-run coefficients are statistically insignificant. Trade openness volatility has a negative and significant lagged short-run coefficient but an insignificant long-run relationship. Exchange-rate volatility exhibits significant short-run effects with opposing signs across contemporaneous and lagged terms, alongside a positive and statistically significant long-run coefficient. These findings indicate that the growth implications of policy volatility differ across policy dimensions and over time. The study highlights the importance of predictable monetary management, credible fiscal planning, and coordinated trade and exchange-rate policies in strengthening Nigeria's growth performance.