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Are Fiscal Deficits Inflationary In Nigeria? New Evidence From Bounds Testing To Cointegration With Structural Breaks

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  • Ismail O. Fasanya
  • Ayinke Fajobi
  • Abiodun Adetokunbo

Abstract

In this paper, we model the relationship between fiscal deficit and in-flation for Nigeria using annual data from 1980 to 2016. We employ the linear ARDL approach and account for structural breaks using the Bai and Perron (2003) test that allows for multiple structural changes in regression models. The paper finds that the fiscal deficit is a major determinant of inflation along with other macroeconomic factors considered in the study. However, we observe that it may be necessary to pre-test for structural breaks when modelling the relationship between the fiscal deficit and the price level, as it performs better than when structural events are not consid-ered. The results imply that a fiscal man-agement process that does not encourage increased revenue and reduce fiscal deficits will further worsen the level of inflation in the country.

Suggested Citation

  • 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 –.
    • Handle: RePEc:beo:journl:v:66:y:2021:i:228:p:123-148
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    References listed on IDEAS

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    Cited by:

    1. Johnbosco Chukwuma Ozigbu, 2023. "Responsiveness of Headline Inflation to the Dynamics of Monetary Aggregates in Nigeria: A Structural Vector Autoregressive (SVAR) Approach," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 7(9), pages 1701-1711, September.

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    More about this item

    Keywords

    fiscal deficit; price level; ARDL cointegration; structural breaks;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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