IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/118128.html
   My bibliography  Save this paper

Analysis of the dynamic of inflation process in Nigeria: An application of GARCH modelling

Author

Listed:
  • Ekpeyong, Paul

Abstract

This study investigates the dynamics of inflation volatility in Nigeria, with a specific focus on the Food Consumer Price Index (CPI), Core CPI, and Headline CPI. The analysis utilizes the Autoregressive Conditional Heteroskedasticity (ARCH) and Generalized Autoregressive Conditional Heteroskedasticity (GARCH) models to capture time-varying volatility in the inflation rates. The study covers the period from January 1995 to December 2022, employing monthly data sourced from the Central Bank of Nigeria database. The results indicate that all three inflation series display time-varying volatility, signifying varying degrees of fluctuations and uncertainties in price movements over different periods. Furthermore, the presence of ARCH and GARCH effects in the residuals of the volatility models confirms the dynamic nature of inflation volatility. The study identifies significant structural breaks in the volatility of Food CPI during the years 2000, 2008, and 2018, emphasizing the importance of understanding the drivers of inflation volatility. External events and policy changes during these periods impacted food prices and led to shifts in volatility. Policy recommendations are made to address the challenges posed by inflation volatility in Nigeria. These include implementing price stability measures, enhancing food security, strengthening monetary policy, promoting data transparency and analysis, and undertaking fiscal reforms. The findings of this study contribute to a deeper understanding of inflation volatility in Nigeria and provide valuable insights for policymakers in formulating effective strategies to manage inflation and achieve macroeconomic stability. The study highlights the importance of monitoring inflation dynamics and implementing timely policies to ensure sustained economic growth and development in the country.

Suggested Citation

  • Ekpeyong, Paul, 2023. "Analysis of the dynamic of inflation process in Nigeria: An application of GARCH modelling," MPRA Paper 118128, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:118128
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/118128/1/ANALYSIS%20OF%20THE%20DYNAMICS%20OF%20INFLATION%20MODELLING%20IN%20NIGERIA.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Brooks,Chris, 2008. "RATS Handbook to Accompany Introductory Econometrics for Finance," Cambridge Books, Cambridge University Press, number 9780521896955.
    2. Anastassios A. Drakos & Georgios P. Kouretas & Leonidas P. Zarangas, 2010. "Forecasting financial volatility of the Athens stock exchange daily returns: an application of the asymmetric normal mixture GARCH model," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 15(4), pages 331-350.
    3. Brunner, Allan D & Hess, Gregory D, 1993. "Are Higher Levels of Inflation Less Predictable? A State-Dependent Conditional Heteroscedasticity Approach," Journal of Business & Economic Statistics, American Statistical Association, vol. 11(2), pages 187-197, April.
    4. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
    5. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
    6. Ding, Zhuanxin & Granger, Clive W. J. & Engle, Robert F., 1993. "A long memory property of stock market returns and a new model," Journal of Empirical Finance, Elsevier, vol. 1(1), pages 83-106, June.
    7. Ball, Laurence, 1992. "Why does high inflation raise inflation uncertainty?," Journal of Monetary Economics, Elsevier, vol. 29(3), pages 371-388, June.
    8. William Miles & Samuel Schreyer, 2009. "Inflation Costs, Uncertainty Costs And Emerging Markets," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 34(2), pages 169-183, December.
    9. Caporale, Tony & McKiernan, Barbara, 1997. "High and variable inflation: Further evidence on the Friedman hypothesis," Economics Letters, Elsevier, vol. 54(1), pages 65-68, January.
    10. Grier, Kevin B. & Perry, Mark J., 1998. "On inflation and inflation uncertainty in the G7 countries," Journal of International Money and Finance, Elsevier, vol. 17(4), pages 671-689, August.
    11. Elder, John, 2004. "Another Perspective on the Effects of Inflation Uncertainty," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(5), pages 911-928, October.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Broto Carmen & Ruiz Esther, 2009. "Testing for Conditional Heteroscedasticity in the Components of Inflation," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 13(2), pages 1-30, May.
    2. Broto, Carmen & Ruiz Ortega, Esther, 2006. "Using auxiliary residuals to detect conditional heteroscedasticity in inflation," DES - Working Papers. Statistics and Econometrics. WS ws060402, Universidad Carlos III de Madrid. Departamento de Estadística.
    3. Nicholas Apergis & Umit Bulut & Gulbahar Ucler & Serife Ozsahin, 2021. "The causal linkage between inflation and inflation uncertainty under structural breaks: Evidence from Turkey," Manchester School, University of Manchester, vol. 89(3), pages 259-275, June.
    4. James Payne, 2009. "Inflation targeting and the inflation-inflation uncertainty relationship: evidence from Thailand," Applied Economics Letters, Taylor & Francis Journals, vol. 16(3), pages 233-238.
    5. Carmen PINTILESCU & Mircea ASANDULUI & Elena-Daniela VIORICA & Danut-Vasile JEMNA, 2016. "Investigation On The Causal Relationship Between Inflation, Output Growth And Their Uncertainties In Romania," Review of Economic and Business Studies, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, issue 17, pages 71-89, June.
    6. Kushal Banik Chowdhury & Kaustav Kanti Sarkar & Srikanta Kundu, 2021. "Nonlinear relationships between inflation, output growth and uncertainty in India: New evidence from a bivariate threshold model," Bulletin of Economic Research, Wiley Blackwell, vol. 73(3), pages 469-493, July.
    7. Mehmet Balcilar & Zeynel Abidin Ozdemir, 2013. "Asymmetric and Time-Varying Causality between Inflation and Inflation Uncertainty in G-7 Countries," Scottish Journal of Political Economy, Scottish Economic Society, vol. 60(1), pages 1-42, February.
    8. Sajid Amin Javed & Saud Ahmad Khan & Azad Haider & Farzana Shaheen, 2012. "Inflation and Inflation Uncertainty Nexus: Empirical Evidence from Pakistan," International Journal of Economics and Financial Issues, Econjournals, vol. 2(3), pages 348-356.
    9. Omotosho, Babatunde S. & Doguwa, Sani I., 2012. "Understanding the dynamics of inflation volatility in Nigeria: A GARCH perspective," MPRA Paper 96125, University Library of Munich, Germany.
    10. M. Berument & Yeliz Yalcin & Julide Yildirim, 2011. "The inflation and inflation uncertainty relationship for Turkey: a dynamic framework," Empirical Economics, Springer, vol. 41(2), pages 293-309, October.
    11. James Payne, 2009. "Official dollarization in El Salvador and the inflation-inflation uncertainty nexus," Applied Economics Letters, Taylor & Francis Journals, vol. 16(12), pages 1195-1199.
    12. Abidin Ozdemir, Zeynel & Fisunoglu, Mahir, 2008. "On the inflation-uncertainty hypothesis in Jordan, Philippines and Turkey: A long memory approach," International Review of Economics & Finance, Elsevier, vol. 17(1), pages 1-12.
    13. Levent, Korap, 2009. "Enflasyon ve enflasyon belirsizliği ilişkisi için G7 ekonomileri üzerine bir inceleme [An investigation for the inflation and inflation uncertainty relationship upon the G7 economies]," MPRA Paper 19478, University Library of Munich, Germany.
    14. Kuang‐Liang Chang & Chi‐Wei He, 2010. "Does The Magnitude Of The Effect Of Inflation Uncertainty On Output Growth Depend On The Level Of Inflation?," Manchester School, University of Manchester, vol. 78(2), pages 126-148, March.
    15. Guglielmo Caporale & Luca Onorante & Paolo Paesani, 2012. "Inflation and inflation uncertainty in the euro area," Empirical Economics, Springer, vol. 43(2), pages 597-615, October.
    16. Bedri Kamil Onur Taş, 2012. "Inflation Targeting and Inflation Uncertainty," Scottish Journal of Political Economy, Scottish Economic Society, vol. 59(3), pages 283-297, July.
    17. Siti Hamizah Mohd & Ahmad Zubaidi Baharumshah & Stilianos Fountas, 2013. "Inflation, Inflation Uncertainty And Output Growth: Recent Evidence From Asean-5 Countries," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 58(04), pages 1-17.
    18. Kajal Lahiri & Fushang Liu, 2006. "Modelling multi‐period inflation uncertainty using a panel of density forecasts," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 21(8), pages 1199-1219, December.
    19. Korap, Levent & Saatçioğlu, Cem, 2009. "New time series evidence for the causality relationship between inflation and inflation uncertainty in the Turkish economy," MPRA Paper 19246, University Library of Munich, Germany.
    20. Berument, Hakan & Yalcin, Yeliz & Yildirim, Julide, 2009. "The effect of inflation uncertainty on inflation: Stochastic volatility in mean model within a dynamic framework," Economic Modelling, Elsevier, vol. 26(6), pages 1201-1207, November.

    More about this item

    Keywords

    ARCH; Consumer price index; Headline; core; volatility; GARCH;
    All these keywords.

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:118128. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.