THE IMPACT OF MONETARY POLICY AND CLIMATE CHANGE ON INCOME INEQUALITY IN NIGERIA

Abstract

Income inequality in Nigeria persists despite decades of monetary interventions and growth policies, and is increasingly compounded by climate-related shocks. While these drivers are often examined separately, this study offers a novel perspective by jointly analyzing how monetary 
policy and climate change interact to shape inequality. Using annual data from 1986–2024 and the Autoregressive Distributed Lag (ARDL) model, the study assesses the short- and long-run dynamics among the Gini index, monetary policy rate (MPR), GDP growth, and climate indicators. Unit root tests show mixed integration orders, while ARDL bounds tests reveal no 
significant long-run relationship. Short-run estimates, however, indicate that a higher MPR significantly raises inequality, implying that monetary tightening disproportionately affects vulnerable groups. GDP growth also exhibits a marginally positive effect on inequality, reflecting “growth without inclusion,” while climate variables are insignificant in the short run. The findings suggest that monetary policies must integrate equity objectives. The Central Bank of Nigeria should expand targeted credit schemes and promote financial inclusion, while government authorities should invest in climate-resilient agriculture, irrigation, and disaster-risk 
reduction to cushion vulnerable populations. Coordinated policies are essential to ensure that macroeconomic stability does not exacerbate inequality.