An Empirical Analysis on the Relationship between Fiscal Deficit and Inflation in Nigeria
Journal Title: Annals of "Dunarea de Jos" University - Fascicle I. Economics and Applied Informatics - Year 2014, Vol 20, Issue 2
Abstract
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.
Authors and Affiliations
Mika’ilu ABUBAKAR, Haruna Mohammed ALIERO, Ali Danjumah UMARU
Keywords
Related Articles
- EP ID EP148921
- DOI -
- Views 114
- Downloads 0
Cash Flow Analysis on the Example Cormans Ltd. Galati
Finding appropriate ways to use cash flows to achieve financial diagnosis is one of the hardest tasks for financial analysts. Literature stressed the advantages for financial diagnosis users, when using flow information,...
Knowledge Economy and the Necessity of Knowledge Management
This paper tries to present an existing relation between knowledge economy and knowledge management. We started by emphasizing the main principles of knowledge society and the consequences that determine the movement to...
An Integrated Dashboard and Balanced Scorecard Solution
Access to information has always been a stringent necessity for any organization. This necessity has become more stringent in the actual economic context, as decisions must be taken in the shortest time. That is wh...
The Legal Support, Content and Certain Implications of Some of the New Accounting Regulations
Romania is a fully-fledged member of the European Union, a status which brings with it a series of rights but also implies the strict following of the agreed upon obligations. A portion of the government's attention must...
The analysis of the customers’ perception on CSR – tridimensional approach – cultural, economical and social
There has been observed a more obvious need of the companies to appeal to community in order to find the necessary support and resources to accomplish their mission and objectives. For the society to develop, the populat...