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Modelling the Inflation Process in Nigeria

  • Olusanya E. Olubusoye
  • Rasheed Oyaromade

This study is motivated by the conviction that inflation entails sizeable economic and social costs, and controlling it is one of the prerequisites for achieving a sustainable economic growth. The study analyses the main sources of fluctuations in inflation in Nigeria. Using the framework of error correction mechanism, it was found that the lagged CPI, expected inflation, petroleum prices and real exchange rate significantly propagate the dynamics of inflationary process in Nigeria. The level of output was found to be insignificant in the parsimonious error correction model. Surprisingly, the coefficient of the lagged value of money supply was found to be negative and significant only at the 10% level. One of the major implications of this result is that efforts of the monetary regulating authorities to stabilize the domestic prices would continuously be disrupted by volatility in the international price of crude oil.

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Paper provided by African Economic Research Consortium in its series Research Papers with number RP_182.

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Length: 46 pages
Date of creation: Aug 2008
Date of revision:
Handle: RePEc:aer:rpaper:rp_182
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