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Inflation: How Much Is Too Much For Economic Growth in Nigeria


  • FABAYO, Joseph Ademola

    (Department of Economics, Obafemi Awolowo University, Ile-Ife, Nigeria.)

  • AJILORE, Olubanjo Taiwo

    (Department of Economics, Obafemi Awolowo University, Ile-Ife, Nigeria.)


This study follows the methodology of Khan and Sendhadji (2001) to examine the existence of threshold effects in the inflation-growth relationship, using Nigeria data for the period 1970 to 2003. The results suggest the existence of inflation threshold level of 6 percent. Below this level, there exists significantly positive relationship between inflation and economic growth, while above this threshold level, inflation retards growth performance. Sensitivity analyses conducted confirmed the robustness of these results. This finding suggests that bringing inflation down to single digits should be the goal of macroeconomic management in Nigeria, while the optimal inflation target for policy in Nigeria is 6 percent.

Suggested Citation

  • FABAYO, Joseph Ademola & AJILORE, Olubanjo Taiwo, 2006. "Inflation: How Much Is Too Much For Economic Growth in Nigeria," Indian Economic Review, Department of Economics, Delhi School of Economics, vol. 41(2), pages 129-147, December.
  • Handle: RePEc:dse:indecr:v:41:y:2006:i:2:p:129-147

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    Cited by:

    1. Nepal Rastra Bank Research Department NRB, 2017. "Optimal Inflation Rate for Nepal," Working Papers id:12120, eSocialSciences.
    2. repec:rjr:romjef:v::y:2017:i:4:p:134-151 is not listed on IDEAS
    3. Phiri, Andrew, 2018. "Endogenous monetary approach to optimal inflation-growth nexus in Swaziland," MPRA Paper 88258, University Library of Munich, Germany.
    4. Hasanov, Fakhri, 2011. "Relationship between inflation and economic growth in Azerbaijani economy: is there any threshold effect?," MPRA Paper 33494, University Library of Munich, Germany.

    More about this item


    Inflation; Economic Growth; Threshold Level;

    JEL classification:

    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
    • F5 - International Economics - - International Relations, National Security, and International Political Economy


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