An Empirical Analysis on the Relationship between Fiscal Deficit and Inflation in Nigeria
Fecha
2014Autor
Abubakar, Mika'ilu
Aliero, Haruna Mohammed
Umaru, Ali Danjumah
Metadatos
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The implications of fiscal deficits on key macroeconomic variables have led to a large body
of literature examining the question of whether economies with large and persistent fiscal
deficits have high inflation rate. In line with this argument, this research work examines the
long-run relationship between fiscal deficit and inflation in Nigeria using Autoregressive
distributed lag (ARDL) approach to cointegration on a time series data spanning from 1970
to 2011. It further examines the nature and direction of causality between the two
variables. The ARDL result reveals that there is insignificant long run relationship between
fiscal deficit and inflation. There is also no significant relationship between exchange rate
depreciation and inflation. However, there is a positive and significant long-run relationship
between interest rate and inflation. On the direction of causality, uni-directional causalities
running from fiscal deficit to inflation and also from inflation to interest rates were evident,
while no causality between inflation and exchange rates was recorded. The study therefore,
concludes that the sustained fiscal deficit maintained over the years is not the cause of
inflation. Rather, interest rate is the main cause of inflation, as such policies targeted at
inflation control could be best achieved if geared towards reducing interest rate.
Colecciones
- 2014 fascicula1 nr2 [15]