MACROECONOMIC DETERMINANTS OF INFLATION IN NIGERIA
Keywords:
Inflation; money supply; monetary policy; exchange rate; bound test.Abstract
Nigeria is rapidly facing perennial shocks resulting from price
fluctuation leading particularly the monetary authority to
implement several measures aimed at overcoming the problematic
inflation. However, the price changes persist and concerns are
mounting on what determines inflation in Nigeria. This study
investigates empirically the macroeconomic determinants of
inflation in Nigeria. The study used annual time series data
covering from 1984 to 2019 which was analysed within the
framework of Autoregressive Distributed Lag. The finding using
the bound test shows evidence of cointegration among the exchange
rate, interest rate, money supply, inflation and trade openness in
Nigeria. Interestingly, while the finding further established that
money supply and trade openness have a significant positive impact
on inflation both in short run and long run, exchange rate has a
significant positive effect on inflation in the short run but negatively
in the long run. However, interest rate is impacting negatively on
inflation in both short run and long run. Thus, Central Bank
through monetary policy has a dedicated role to play in finding a
harmonious threshold level of money supply, interest rate and
exchange rate consistent with the desired inflation level that will
spur the performance of the Nigerian economy.