Determinants of behavior of inflation rate in Nigeria
Open Access
- 15 April 2019
- journal article
- Published by LLC CPC Business Perspectives in Investment Management and Financial Innovations
- Vol. 16 (2), 25-36
- https://doi.org/10.21511/imfi.16(2).2019.03
Abstract
Inflation is an important macroeconomic issue that has continued to dominate discussions at major economic fora over time. Governments all over the world are concerned about its rising trend because of its pervasive effect on economic performance. One intriguing fact about inflation is that it is both the cause and effect of certain policy actions of government. Several studies have been conducted on the effect of inflation on economic activities in developing and developed nations, but studies on its cause, particularly in developing nations, are scant. This paper aims at identifying major factors that cause inflation in Nigeria. Based on the autoregressive distributed lag (ARDL) estimation method, the study shows empirical support for significant impact of external debt, exchange rate, fiscal deficits, money supply and economic growth on inflation. It further shows previous period or lagged inflation rate as a significant determinant of current inflation rate. However, the study produced no evidence of significant longrun impact of interest rate on the rate of inflation in Nigeria. The study recommends economic reforms that target foreign exchange inflow through increased export trade, as well as a paradigm shift away from deficit budgeting. There is also a need for infrastructural and institutional reforms to eliminate or, at least, minimize the impact of structural inequity on output prices.Keywords
This publication has 9 references indexed in Scilit:
- Financial reforms and credit growth in Nigeria: empirical insights from ARDL and ECM techniquesInternational Review of Applied Economics, 2017
- Determinants of Inflation: A Case Study of IranApplied Economics and Finance, 2016
- Key Determinants of Inflation in GhanaBritish Journal of Economics, Management & Trade, 2015
- Econometric Analysis of Foreign Reserves and Some Macroeconomic Variables in Nigeria (1970–2007)*African Development Review, 2009
- The Sources of Inflation in Egypt: A Multivariate Co-integration AnalysisReview of Middle East Economics and Finance, 2005
- Sources of Inflation in Developing CountriesIMF Working Papers, 2001
- An Econometric Analysis of the Determinants of Inflation in TurkeyIMF Working Papers, 1997
- The Main Determinants of Inflation in NigeriaStaff Papers, 1995
- The Relation between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, 1861-1957Economica, 1958