Macroeconomics and Monetary Economics - 3
Abstract
This study focuses on evaluating the monetary, fiscal and external inflationary sources in
Nigeria. Empirical evidence suggests that the adoption of either monetary or fiscal policy or a
synchronization of both policies appears to be very popular in Developing Nations like Nigeria. Often
time, the policy choice that prevails is taken to be the sole cause of inflation in the economy. Such
understanding has led to the obvious ambiguity in empirical literature centred on developing nations,
regarding what the actual sources of inflation are. Thus, this study adopts the Auto Regressive
Distributive estimation technique to capture the monetary, fiscal and external inflationary effects.
Empirical findings of the study showed that overall, the main determining cause of inflation in both
short run and long run periods in Nigeria, are more of monetary and external factors and less of fiscal
sources. Specifically, the problem of inflation in Nigeria appears to be more of a structural phenomenon
than monetary in the short run. However, in the long run, combinations of monetary and external factors
tend to be the major cause of inflation. The study also found the long run effect of lending rate on
inflation, to be indicative of the Neo-Fisherism effect.
References
Jalil, A.; Rabbia, T. & Nazia, B. (2014). Fiscal deficit and inflation: New evidences from Pakistan using
a bounds testing approach. Journal of Economic Modelling. Vol 37, pp. 120-126.
Ashra, S.; Chattopadhyay, S. & Chaudhuri, K. (2004). Deficit, money, and price: The Indian
experience. Journal of Policy Modeling, Vol. 26, No. 3, pp. 289–299.
Barro, R.J. (2013). On the Determination of the Public Debt. Journal of Political Economy, Vol. 87,
No. 5, Part 1, pp. 940-971.
Boschi, M. & Girardi, A. (2007). Euro Area Inflation: Long-run Determinants and Short-run Dynamics.
Applied Financial Economics, Vol. 17, No. 1, pp. 9–24.
Boujelbene, T. & Boujelbene, Y. (2010). Long run determinants and short-run dynamics of inflation in
Tunisia. Applied Economics Letters, Vol. 17, No. 13, pp. 1255–1263.
Bruno, M. (1993). Crisis, Stabilization and Economic Reform. Oxford: Clarendon Press.
Catão, L.A.V. & Terrones, M.E. (2005). Fiscal deficits and inflation. Journal of Monetary Economics,
Vol. 52, No. 3, pp. 529–554.
Chand, S. (2016). Structural Inflation: Useful notes on structural inflation! Retrieved from
www.yourarticlelibrary.com.
Chimobi, O.P. & Igwe, O.L. (2010). Budget Deficit, Money Supply, and Inflation in Nigeria. European
Journal of Economics, Finance and Administrative Sciences, Vol. 19, No. 5, pp. 52-60.
Daniel, G.A. & Nuhu, M. (2015). Monetary Policy and Inflation Control in Nigeria. Journal of
Economics and Sustainable Development, Vol. 6, No. 8, pp. 108-116.
Dornbush, R.; Sturzenegger, F.; Wolf, H.; Fischer, S. & Barro, R. (1990). Extreme inflation: Dynamics
and stabilization. Brookings Papers on Economic Activity, Vol. 2, pp. 1–84.
Douglas, W.E. (1998). Government Debt. NBER Working Paper Series. No. 6470, pp. 1-91.
Durevall, D. (1998). The Dynamics of Chronic Inflation in Brazil, 1968–85. Journal of Business,
Economics and Statistics, Vol. 16, No. 4, pp. 423–432.
Easterly, W. & Schmidt-Hebbel, K. (1993). Fiscal Deficits and Macroeconomic Performance in
Developing Countries. The World Bank Research Observer. Vol. 8, No. 2, pp. 211-237.
Egwaikhide, F.O.; Chete, L.N. & Falokun, G.O. (1994). Exchange rate depreciation, budget deficit, and
inflation- the Nigeria experience. AERC Research Paper, Vol. 26, pp. 1-45.
Elmendorf, D.W. & Mankiw, N.G. (1998). Government debt. Handbook of Macroeconomics, vol. C,
pp. 1615–1669. North-Holland, Amsterdam. In: Taylor, J.B., Woodford, M. (Eds.)
Engel, R.F. & Granger, C.W.J. (1987). Cointegration and Error Correction: Representation, Estimation,
and Testing. Econometrica, Vol. 55, No 2, pp. 251-276.
Fisher, I. (1911). Recent Changes in Price Levels and their Causes. Bulletin of American Economics
Association. Vol. 2, No. 1, pp. 36–45.
Friedman, M. (1968). The Role of Monetary Policy. American Economic Review. Vol. 58, No. 1, pp.
1-17.
Hanif, M.N. (2012). A note on food inflation in Pakistan. MPRA Paper 45009. Retrieved online at
http://mpra.ub.uni-muenchen.de/45009/.
Havi, E.D. & Enu, P. (2014). The Effect of Fiscal Policy and Monetary Policy on Ghana’s Economic
Growth: Which Policy is more Potent? International Journal of Empirical Finance. Vol. 3, No. 2, pp.
61-75.
Johansen, S. & Juselius, K. (1990). Maximum Likelihood Estimation and Inference on Cointegration
with Applications to the Demand for Money. Oxford Bulletin of Economics and Statistics, Vol. 52, No.
2, pp. 169-210.
Johansen, S. (1988). Statistical Analysis of Cointegrating Vectors. Journal of Economic Dynamics and
Control, Vol. 12, No. 2-3, pp. 231-254.
Kia, A. (2006). Deficits, Debt Financing, Monetary Policy and Inflation in Developing Countries:
Internal or external factors? Evidence from Iran. Journal of Asian Economics, Vol. 17, pp. 879–903.
Kose, N.; Furkan, E. & Sezgin, A. (2012). The Interest Rate–Inflation Relationship under an Inflation
Targeting Regime: The case of Turkey. Journal of Asian Economy. Vol. 23, pp. 476–485.
Leeper, E.M. (1991). Equilibria under “active” and “passive” monetary and fiscal policies. Journal of
Monetary Economics, Vol. 27, No.1, pp. 129–147.
Lin, H.Y. & Chu, H.P. (2013). Are fiscal deficits inflationary? Journal of International Money Finance,
Vol. 32, pp. 214-233.
Miller, P.J. (1983). Examining the proposition that federal budget deficits matter. In The Economic
Consequences of Government Deficits, pp. 3-24. Netherlands: Springer.
Murota, R. (2010). Inflation, Fiscal Deficits, and Multiple Steady States in a Cash-In-Advance Model.
Faculty of Economics, Kinki University, Japan Working Paper Series, No. E-14, pp. 1-23.
Musa, Y.; Asare, B.K. & Gulumbe, S.U. (2013). Effect of Monetary-Fiscal Policies Interaction on Price
and Output Growth in Nigeria. CBN Journal of Applied Statistics, Vol. 4, No. 1, pp. 55-74.
Odusanya, I.A. & Atanda, A.A. (2010). Analysis of Inflation and Its Determinants in Nigeria. Pakistan
Journal of Social Sciences, Vol. 7, No. 2, pp. 97-100.
Oladipo, S.O & Akinbobola, T.O. (2011). Budget Deficit and Inflation in Nigeria: A Causal
Relationship. Journal of Emerging Trends in Economics and Management Sciences. Vol. 2, No. 1, pp.
1-8.
Onwioduokit, E.A. (1999). Fiscal deficits and inflation dynamics in Nigeria: An empirical investigation
of a causal relationship. Central Bank Nigeria Economic and Financial Review, 37(2), pp. 1-16.
Oseni, I.O. & Sanni, H.Y. (2016). Does Fiscal Deficit Granger Cause Impulsiveness in Inflation Rate
in Nigeria? Acta Universitatis Danubius, Vol. 12, No. 4, pp. 208-216.
Pekarski, S. (2011). Budget deficits and inflation feedback. Structural Change and Economic
Dynamics, Vol. 22, pp 1-11.
Perron, P. (1988). Trends and Random Walks in Macroeconomic Times Series: Further Evidence from
a New Approach. Journal of Economic Dynamics and Control. Vol. 12, No. 2-3, pp. 297-332.
Pesaran, M.H.; Shin, Y. & Smith, R.J. (2001). Bounds Testing Approaches to the Analysis of Level
Relationship. Journal of Applied Economics. Vol. 16, No. 3, pp. 289-326.
Raghbendra, J. (2001). Macroeconomics of Fiscal Policy in Developing Countries. Australian National
University, Canberra, Australia.
Romer, D. (1993). Openness and inflation, theory and evidence. The Quarterly Journal of Economics.
Vol. 108, No. 4, pp. 870–903.
Samimi, A.J.; Ghaderi, S.; Hosseinzadeh, R. & Nademi, Y. (2012). Openness and inflation: new
empirical panel data evidence. Economics Letters, Vol. 117, No. 3, pp. 573–577.
Sargent, T.J. & Wallace, N. (1986). Some unpleasant monetarist arithmetic, Chapter 5. In T. Sargent
(Ed.), Rational expectations and inflation, New York. Harper & Row Publisher.
Sargent, T. & Wallace, N. (1981). Some unpleasant monetarist arithmetic. Federal Reserve Bank of
Minneapolis Quarterly Review, Vol. 5, No. 3, pp. 1-17.
Sim, C.A. (1994). A simple model for the study of the determination of the price level and the
interaction of monetary and fiscal policy. Economic Theory. Vol. 4, No. 3, pp. 381–399.
Tahira, I. & Hassan, M.M. (2015). Deficit and inflation; Are monetary and financial institutions worthy
to consider or not? Borsa Istanbul Review, Vol. 15, No. 3, pp. 180-191.
Tamunonimim, A.N. (2016). Monetary Policy and Inflation in Nigeria. International Journal of
Finance and Accounting. Vol. 5, No. 2, pp. 67-76.
Williamson, S. (2016). Neo-Fisherism: a radical idea, or the most obvious solution to the low-inflation
problem? The Regional Economist. Retreived online at www.stiouisfed.org.
Woodford, M. (2001). Fiscal requirements for price stability. Journal of Money, Credit, and Banking.
Vol. 33, No. 3, pp. 669–728.
a bounds testing approach. Journal of Economic Modelling. Vol 37, pp. 120-126.
Ashra, S.; Chattopadhyay, S. & Chaudhuri, K. (2004). Deficit, money, and price: The Indian
experience. Journal of Policy Modeling, Vol. 26, No. 3, pp. 289–299.
Barro, R.J. (2013). On the Determination of the Public Debt. Journal of Political Economy, Vol. 87,
No. 5, Part 1, pp. 940-971.
Boschi, M. & Girardi, A. (2007). Euro Area Inflation: Long-run Determinants and Short-run Dynamics.
Applied Financial Economics, Vol. 17, No. 1, pp. 9–24.
Boujelbene, T. & Boujelbene, Y. (2010). Long run determinants and short-run dynamics of inflation in
Tunisia. Applied Economics Letters, Vol. 17, No. 13, pp. 1255–1263.
Bruno, M. (1993). Crisis, Stabilization and Economic Reform. Oxford: Clarendon Press.
Catão, L.A.V. & Terrones, M.E. (2005). Fiscal deficits and inflation. Journal of Monetary Economics,
Vol. 52, No. 3, pp. 529–554.
Chand, S. (2016). Structural Inflation: Useful notes on structural inflation! Retrieved from
www.yourarticlelibrary.com.
Chimobi, O.P. & Igwe, O.L. (2010). Budget Deficit, Money Supply, and Inflation in Nigeria. European
Journal of Economics, Finance and Administrative Sciences, Vol. 19, No. 5, pp. 52-60.
Daniel, G.A. & Nuhu, M. (2015). Monetary Policy and Inflation Control in Nigeria. Journal of
Economics and Sustainable Development, Vol. 6, No. 8, pp. 108-116.
Dornbush, R.; Sturzenegger, F.; Wolf, H.; Fischer, S. & Barro, R. (1990). Extreme inflation: Dynamics
and stabilization. Brookings Papers on Economic Activity, Vol. 2, pp. 1–84.
Douglas, W.E. (1998). Government Debt. NBER Working Paper Series. No. 6470, pp. 1-91.
Durevall, D. (1998). The Dynamics of Chronic Inflation in Brazil, 1968–85. Journal of Business,
Economics and Statistics, Vol. 16, No. 4, pp. 423–432.
Easterly, W. & Schmidt-Hebbel, K. (1993). Fiscal Deficits and Macroeconomic Performance in
Developing Countries. The World Bank Research Observer. Vol. 8, No. 2, pp. 211-237.
Egwaikhide, F.O.; Chete, L.N. & Falokun, G.O. (1994). Exchange rate depreciation, budget deficit, and
inflation- the Nigeria experience. AERC Research Paper, Vol. 26, pp. 1-45.
Elmendorf, D.W. & Mankiw, N.G. (1998). Government debt. Handbook of Macroeconomics, vol. C,
pp. 1615–1669. North-Holland, Amsterdam. In: Taylor, J.B., Woodford, M. (Eds.)
Engel, R.F. & Granger, C.W.J. (1987). Cointegration and Error Correction: Representation, Estimation,
and Testing. Econometrica, Vol. 55, No 2, pp. 251-276.
Fisher, I. (1911). Recent Changes in Price Levels and their Causes. Bulletin of American Economics
Association. Vol. 2, No. 1, pp. 36–45.
Friedman, M. (1968). The Role of Monetary Policy. American Economic Review. Vol. 58, No. 1, pp.
1-17.
Hanif, M.N. (2012). A note on food inflation in Pakistan. MPRA Paper 45009. Retrieved online at
http://mpra.ub.uni-muenchen.de/45009/.
Havi, E.D. & Enu, P. (2014). The Effect of Fiscal Policy and Monetary Policy on Ghana’s Economic
Growth: Which Policy is more Potent? International Journal of Empirical Finance. Vol. 3, No. 2, pp.
61-75.
Johansen, S. & Juselius, K. (1990). Maximum Likelihood Estimation and Inference on Cointegration
with Applications to the Demand for Money. Oxford Bulletin of Economics and Statistics, Vol. 52, No.
2, pp. 169-210.
Johansen, S. (1988). Statistical Analysis of Cointegrating Vectors. Journal of Economic Dynamics and
Control, Vol. 12, No. 2-3, pp. 231-254.
Kia, A. (2006). Deficits, Debt Financing, Monetary Policy and Inflation in Developing Countries:
Internal or external factors? Evidence from Iran. Journal of Asian Economics, Vol. 17, pp. 879–903.
Kose, N.; Furkan, E. & Sezgin, A. (2012). The Interest Rate–Inflation Relationship under an Inflation
Targeting Regime: The case of Turkey. Journal of Asian Economy. Vol. 23, pp. 476–485.
Leeper, E.M. (1991). Equilibria under “active” and “passive” monetary and fiscal policies. Journal of
Monetary Economics, Vol. 27, No.1, pp. 129–147.
Lin, H.Y. & Chu, H.P. (2013). Are fiscal deficits inflationary? Journal of International Money Finance,
Vol. 32, pp. 214-233.
Miller, P.J. (1983). Examining the proposition that federal budget deficits matter. In The Economic
Consequences of Government Deficits, pp. 3-24. Netherlands: Springer.
Murota, R. (2010). Inflation, Fiscal Deficits, and Multiple Steady States in a Cash-In-Advance Model.
Faculty of Economics, Kinki University, Japan Working Paper Series, No. E-14, pp. 1-23.
Musa, Y.; Asare, B.K. & Gulumbe, S.U. (2013). Effect of Monetary-Fiscal Policies Interaction on Price
and Output Growth in Nigeria. CBN Journal of Applied Statistics, Vol. 4, No. 1, pp. 55-74.
Odusanya, I.A. & Atanda, A.A. (2010). Analysis of Inflation and Its Determinants in Nigeria. Pakistan
Journal of Social Sciences, Vol. 7, No. 2, pp. 97-100.
Oladipo, S.O & Akinbobola, T.O. (2011). Budget Deficit and Inflation in Nigeria: A Causal
Relationship. Journal of Emerging Trends in Economics and Management Sciences. Vol. 2, No. 1, pp.
1-8.
Onwioduokit, E.A. (1999). Fiscal deficits and inflation dynamics in Nigeria: An empirical investigation
of a causal relationship. Central Bank Nigeria Economic and Financial Review, 37(2), pp. 1-16.
Oseni, I.O. & Sanni, H.Y. (2016). Does Fiscal Deficit Granger Cause Impulsiveness in Inflation Rate
in Nigeria? Acta Universitatis Danubius, Vol. 12, No. 4, pp. 208-216.
Pekarski, S. (2011). Budget deficits and inflation feedback. Structural Change and Economic
Dynamics, Vol. 22, pp 1-11.
Perron, P. (1988). Trends and Random Walks in Macroeconomic Times Series: Further Evidence from
a New Approach. Journal of Economic Dynamics and Control. Vol. 12, No. 2-3, pp. 297-332.
Pesaran, M.H.; Shin, Y. & Smith, R.J. (2001). Bounds Testing Approaches to the Analysis of Level
Relationship. Journal of Applied Economics. Vol. 16, No. 3, pp. 289-326.
Raghbendra, J. (2001). Macroeconomics of Fiscal Policy in Developing Countries. Australian National
University, Canberra, Australia.
Romer, D. (1993). Openness and inflation, theory and evidence. The Quarterly Journal of Economics.
Vol. 108, No. 4, pp. 870–903.
Samimi, A.J.; Ghaderi, S.; Hosseinzadeh, R. & Nademi, Y. (2012). Openness and inflation: new
empirical panel data evidence. Economics Letters, Vol. 117, No. 3, pp. 573–577.
Sargent, T.J. & Wallace, N. (1986). Some unpleasant monetarist arithmetic, Chapter 5. In T. Sargent
(Ed.), Rational expectations and inflation, New York. Harper & Row Publisher.
Sargent, T. & Wallace, N. (1981). Some unpleasant monetarist arithmetic. Federal Reserve Bank of
Minneapolis Quarterly Review, Vol. 5, No. 3, pp. 1-17.
Sim, C.A. (1994). A simple model for the study of the determination of the price level and the
interaction of monetary and fiscal policy. Economic Theory. Vol. 4, No. 3, pp. 381–399.
Tahira, I. & Hassan, M.M. (2015). Deficit and inflation; Are monetary and financial institutions worthy
to consider or not? Borsa Istanbul Review, Vol. 15, No. 3, pp. 180-191.
Tamunonimim, A.N. (2016). Monetary Policy and Inflation in Nigeria. International Journal of
Finance and Accounting. Vol. 5, No. 2, pp. 67-76.
Williamson, S. (2016). Neo-Fisherism: a radical idea, or the most obvious solution to the low-inflation
problem? The Regional Economist. Retreived online at www.stiouisfed.org.
Woodford, M. (2001). Fiscal requirements for price stability. Journal of Money, Credit, and Banking.
Vol. 33, No. 3, pp. 669–728.
Published
2021-06-25
How to Cite
Collective Authors. (2021). Macroeconomics and Monetary Economics - 3: Array. Acta Universitatis Danubius. Œconomica, 14(7). Retrieved from https://dj.univ-danubius.ro/index.php/AUDOE/article/view/1193
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