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Dynamic Analysis of the Effect of Fiscal Deficit on Inflation in Nigeria

Author

Listed:
  • Ibrahim Abdulhamid Danlami
  • Mohamad Helmi Bin Hidthiir
  • Sallahuddin Hassan

Abstract

The study is aimed at investigating the short-run and long-run dynamic effects of fiscal deficit on inflation in Nigeria. Autoregressive Distributed Lag Model (ARDL) was applied to time series data from 1970–2016 (of Nigeria). The result, of the estimation, reveals that fiscal deficit is inflationary during the short-run as well as the long-run of the period of study. Findings of the research are limited to Nigeria whose data were used, based on ARDL as the econometrics techniques applied, for a period 1970–2016. The fiscal spending of Nigerian government is one of the factors contributing to inflationary pressure in the country as seen in the findings of the research. The paper was able to prove empirically, the existence of the positive effect of fiscal deficit on inflation in Nigeria, using Nigerian data and also suggest for decision makers in the country to be cautious in terms of the way, the Nigerian government is financing its expenditure through borrowing and fiscal spending.

Suggested Citation

  • Ibrahim Abdulhamid Danlami & Mohamad Helmi Bin Hidthiir & Sallahuddin Hassan, 2019. "Dynamic Analysis of the Effect of Fiscal Deficit on Inflation in Nigeria," Academic Journal of Economic Studies, Faculty of Finance, Banking and Accountancy Bucharest,"Dimitrie Cantemir" Christian University Bucharest, vol. 5(2), pages 159-165, June.
    • Handle: RePEc:khe:scajes:v:5:y:2019:i:2:p:159-165
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    References listed on IDEAS

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    6. Odusanya, Ibrahim Abidemi & Atanda, Akinwande AbdulMaliq, 2010. "Analysis of inflation and its determinants in Nigeria," MPRA Paper 35837, University Library of Munich, Germany.
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    8. Tahira Ishaq & Hassan M. Mohsin, 2015. "Deficits and inflation; Are monetary and financial institutions worthy to consider or not?," Borsa Istanbul Review, Research and Business Development Department, Borsa Istanbul, vol. 15(3), pages 180-191, September.
    9. Jalil, Abdul & Tariq, Rabbia & Bibi, Nazia, 2014. "Fiscal deficit and inflation: New evidences from Pakistan using a bounds testing approach," Economic Modelling, Elsevier, vol. 37(C), pages 120-126.
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    Cited by:

    1. Ismail O. Fasanya & Ayinke Fajobi & Abiodun Adetokunbo, 2021. "Are Fiscal Deficits Inflationary In Nigeria? New Evidence From Bounds Testing To Cointegration With Structural Breaks," Economic Annals, Faculty of Economics and Business, University of Belgrade, vol. 66(228), pages 123-148, January –.

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    More about this item

    Keywords

    ARDL; Commonwealth; Fiscal Deficit; Inflation; Nigeria;
    All these keywords.

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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