Obi Kenneth et al., International Journal of Research in Management, Economics and Commerce, ISSN 2250-057X, Impact Factor: 6.384, Volume 06 Issue 07, July 2016, Page 1-14 www.indusedu.org Page 1 Spillover Effect of US Unconventional Monetary Policy on Nigerian Economy Obi Kenneth 1 and Clement Izuchukwu Igbanugo 2 1 (Associate Professor of Economics, Department of Economics, Nnamdi Azikiwe University, Awka-Nigeria) 2 (Departmnet of Economics Awka-Nigeria) Abstract: Since the late 2000 when the US launched its unconventional monetary policy arsenals such as Quantitative Easing (QE), Targetted Assets Purchase (TAP) and Forward Guidance in response to the great recession, arguments have subsisted in the literature on whether such actions could have spillover effects on small open economies. In this paper, we investigated the spillover effect of US uncoventional Monetary Policy (UMP) on Nigerian economy. We fed monthly US monetary policy proxies assummed to be weakly exogenous and monthly Nigerian data spanning from 2006:M1 to 2015:M12 into a Bayesian VARX model. The Impulse Response Function was also estimated. The major finding of this study is that US UMP exerts beggar-thy-neighbour effect on Nigerian economy. That is, the US UMP depresses growth, export and external reserves in Nigeria. The major transmission channel is found to be trade channel. Also, the inflow of hot money has led the policy makers to respond to excess liquidity by raising the policy rate. This procyclicality has rather encouraged more inflow of hot money and has discouraged investmnet. We therefore recommend that to effectively insulate Nigerian economy from beggar-thy- neighbour effects of US UMP, she must follow sound macroeconomic and macroprudential policies that would allow herto minimize systemic risk arising from US UMPand as well build buffers. Nigerian policy makers need to make concerted effort to make export more competitive by focusing on export promotion and import substitution strategies. Keywords: Unconventional Monetary Policy (UMP), Spillover effect, beggar-thy neighbour, Bayesian VARX I.INTRODUCTION Over the past five decades, the global economy has experienced deepening of financial linkages as well as dramatic trade and economic integration. As shown in figure 1.1, total world trade has increased from US$ 1877.5 billion in 1970 to US$ 25251.8 billion in 2015, indicating 1245 per cent increase. Also, the ratio of U.S. export to GDP has more than trippled having increased by more than 200 per cent between 1970 and 2015. Andersen, Bollersl, Diebold & Vega (2007) also noted that the U.S. has maintained a leading role in cross -boarder finance. Thus, in a progressively integrating world economy and financial system, cross-border spillover may be inevitable. Figure 1.1: world trade in volume ( measured in billions os US dollars) Source: Graph Generated by the Authors from Data obtained from Federal Reserves Bank of St. Louis