IDEAS home Printed from https://ideas.repec.org/p/ags/undpae/307343.html
   My bibliography  Save this paper

Output, Inflation, And Exchange Rate In Developing Countries: An Application To Nigeria

Author

Listed:
  • ODUSOLA, Ayodele
  • AKINLO, Anthony

Abstract

The three major explanations of inflation include fiscal, monetary, and balance of payments aspects. While in the monetary aspect inflation is considered to be due to an increase in money supply, in the fiscal aspect, budget deficits are the fundamental cause of inflation in countries with prolonged high inflation. However, the fiscal aspect is closely linked to monetary explanations of inflation since government deficits are often financed by money creation in developing countries. In the balance of payments aspect, emphasis is placed on the exchange rate. Simply, the exchange rate collapses bring about inflation either through higher import prices and increase in inflationary expectations which are often accommodated or through an accelerated wage indexation mechanism.3 Several attempts have been made to conduct systematic econometric studies on the movements in output and inflation and their dynamics in Nigeria. However, many of these earlier studies were based on either simulation analysis or regression approach. Our study deviates from the previous ones in Nigeria by the adoption of vector autoregression (VAR) and its structural variant in which movements in inflation and output are driven by several fundamental disturbances—monetary, exchange rates (official and parallel), interest rate, and income

Suggested Citation

  • ODUSOLA, Ayodele & AKINLO, Anthony, "undated". "Output, Inflation, And Exchange Rate In Developing Countries: An Application To Nigeria," UNDP Africa Economists Working Papers 307343, United Nations Development Programme (UNDP).
  • Handle: RePEc:ags:undpae:307343
    DOI: 10.22004/ag.econ.307343
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/307343/files/OUTPUT%2C%20INFLATION%2C%20AND%20EXCHANGE%20RATE%20IN%20DEVELOPING%20COUNTRIES%3A%20AN%20APPLICATION%20TO%20NIGERIA.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Blanchard, Olivier Jean & Quah, Danny, 1989. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," American Economic Review, American Economic Association, vol. 79(4), pages 655-673, September.
    2. Stock, James H. & Watson, Mark W., 1989. "Interpreting the evidence on money-income causality," Journal of Econometrics, Elsevier, vol. 40(1), pages 161-181, January.
    3. Balke, Nathan S & Gordon, Robert J, 1989. "The Estimation of Prewar Gross National Product: Methodology and New Evidence," Journal of Political Economy, University of Chicago Press, vol. 97(1), pages 38-92, February.
    4. van Wijnbergen, S., 1982. "Stagflationary effects of monetary stabilization policies : A quantitative analysis of South Korea," Journal of Development Economics, Elsevier, vol. 10(2), pages 133-169, April.
    5. Fackler, James S, 1990. "Federal Credit, Private Credit, and Economic Activity," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 22(4), pages 444-464, November.
    6. Rogers, John H. & Wang, Ping, 1995. "Output, inflation, and stabilization in a small open economy: Evidence from Mexico," Journal of Development Economics, Elsevier, vol. 46(2), pages 271-293, April.
    7. Calvo, Guillermo A. & Reinhart, Carmen M. & Vegh, Carlos A., 1995. "Targeting the real exchange rate: theory and evidence," Journal of Development Economics, Elsevier, vol. 47(1), pages 97-133, June.
    8. Weir, David R., 1986. "The Reliability of Historical Macroeconomic Data for Comparing Cyclical Stability," The Journal of Economic History, Cambridge University Press, vol. 46(2), pages 353-365, June.
    9. Thomas J. Sargent & Neil Wallace, 1981. "Some unpleasant monetarist arithmetic," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 5(Fall).
    10. Blanchard, Olivier Jean, 1989. "A Traditional Interpretation of Macroeconomic Fluctuations," American Economic Review, American Economic Association, vol. 79(5), pages 1146-1164, December.
    11. Shapiro, Matthew D, 1988. "The Stabilization of the U.S. Economy: Evidence from the Stock Marke t," American Economic Review, American Economic Association, vol. 78(5), pages 1067-1079, December.
    12. Alexander W. Hoffmaister & Carlos A. Végh, 1996. "Disinflation and The Recession-Now-versus-Recession-Later Hypothesis: Evidence from Uruguay," IMF Staff Papers, Palgrave Macmillan, vol. 43(2), pages 355-394, June.
    13. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
    14. Kamin, Steve B. & Rogers, John H., 2000. "Output and the real exchange rate in developing countries: an application to Mexico," Journal of Development Economics, Elsevier, vol. 61(1), pages 85-109, February.
    15. Bernanke, Ben S., 1986. "Alternative explanations of the money-income correlation," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 25(1), pages 49-99, January.
    16. Morley, Samuel A, 1992. "On the Effect of Devaluation during Stabilization Programs in LDCs," The Review of Economics and Statistics, MIT Press, vol. 74(1), pages 21-27, February.
    17. Kamas, Linda, 1995. "Monetary policy and inflation under the crawling peg: Some evidence from VARs for Colombia," Journal of Development Economics, Elsevier, vol. 46(1), pages 145-161, February.
    18. Turner, Paul Michael, 1993. "A Structural Vector Autoregression Model of the UK Business Cycle," Scottish Journal of Political Economy, Scottish Economic Society, vol. 40(2), pages 143-164, May.
    19. Anselm London, 1989. "Money, Inflation and Adjustment Policy in Africa: Some Further Evidence," African Development Review, African Development Bank, vol. 1(1), pages 87-111.
    20. James, John A, 1993. "Changes in Economic Instability in 19th-Century America," American Economic Review, American Economic Association, vol. 83(4), pages 710-731, September.
    21. Thorvaldur Gylfason & Michael Schmid, 1983. "Does Devaluation Cause Stagflation?," Canadian Journal of Economics, Canadian Economics Association, vol. 16(4), pages 641-654, November.
    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. A. E. Akinlo & A. F. Odusola, 2003. "Assessing the impact of Nigeria's naira depreciation on output and inflation," Applied Economics, Taylor & Francis Journals, vol. 35(6), pages 691-703.
    2. Kamin, Steve B. & Rogers, John H., 2000. "Output and the real exchange rate in developing countries: an application to Mexico," Journal of Development Economics, Elsevier, vol. 61(1), pages 85-109, February.
    3. Rogers, John H. & Wang, Ping, 1995. "Output, inflation, and stabilization in a small open economy: Evidence from Mexico," Journal of Development Economics, Elsevier, vol. 46(2), pages 271-293, April.
    4. Steven B. Kamin & Marc Klau, 1997. "Some multi-country evidence on the effects of real exchange rates on output," BIS Working Papers 48, Bank for International Settlements.
    5. Evans, Charles L. & Marshall, David A., 2007. "Economic determinants of the nominal treasury yield curve," Journal of Monetary Economics, Elsevier, vol. 54(7), pages 1986-2003, October.
    6. An, Lian & Kim, Gil & Ren, Xiaomei, 2014. "Is devaluation expansionary or contractionary: Evidence based on vector autoregression with sign restrictions," Journal of Asian Economics, Elsevier, vol. 34(C), pages 27-41.
    7. Keating, John W. & Nye, John V., 1999. "The Dynamic Effects of Aggregate Demand and Supply Disturbances in the G7 Countries," Journal of Macroeconomics, Elsevier, vol. 21(2), pages 263-278, April.
    8. Nergiz Dincer & Magda Kandil, 2011. "The effects of exchange rate fluctuations on exports: A sectoral analysis for Turkey," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 20(6), pages 809-837, June.
    9. Julio López & Ignacio Perrotini, 2006. "Tassi di cambio fluttuanti, deprezzamento valutario e domanda effettiva," Moneta e Credito, Economia civile, vol. 59(235), pages 233-256.
    10. John Simon, 2001. "The Decline in Australian Output Volatility," RBA Research Discussion Papers rdp2001-01, Reserve Bank of Australia.
    11. Ivanov, Ventzislav & Kilian, Lutz, 2001. "A Practitioner's Guide to Lag-Order Selection for Vector Autoregressions," CEPR Discussion Papers 2685, C.E.P.R. Discussion Papers.
    12. Keating, John W., 1996. "Structural information in recursive VAR orderings," Journal of Economic Dynamics and Control, Elsevier, vol. 20(9-10), pages 1557-1580.
    13. Jérôme Creel & Francesco Saraceno & Paola Veroni, 2005. "Discretionary Policy Interactions and the Fiscal Theory of the Price Level: A SVAR Analysis on French Data," Sciences Po publications info:hdl:2441/2525, Sciences Po.
    14. Magda Kandil & Ida Aghdas Mirzaie, 2008. "Comparative Analysis Of Exchange Rate Appreciation And Aggregate Economic Activity: Theory And Evidence From Middle Eastern Countries," Bulletin of Economic Research, Wiley Blackwell, vol. 60(1), pages 45-96, January.
    15. Charles W. Calomiris & Christopher Hanes, 1994. "Historical Macroeconomics and American Macroeconomic History," NBER Working Papers 4935, National Bureau of Economic Research, Inc.
    16. Funke, Michael, 1997. "How important are demand and supply shocks in explaining German business cycles?: New evidence on an old debate," Economic Modelling, Elsevier, vol. 14(1), pages 11-37, January.
    17. M.Yusuf Tashrifov, 2005. "Monetary Policy Model of Tajikstan: A Structural Vector Autoregression Approach," International and Development Economics Working Papers idec05-9, International and Development Economics.
    18. Julio Lopez & Ignocio Perrotini Perrotini, 2006. "On floating exchange rates, currency depreciation and effective demand," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 59(238), pages 221-242.
    19. Goto, Shingo, 2000. "The Fed's Effect on Excess Returns and Inflation is Much Bigger Than You Think," University of California at Los Angeles, Anderson Graduate School of Management qt04f1z5hb, Anderson Graduate School of Management, UCLA.
    20. Guerini, Mattia & Moneta, Alessio, 2017. "A method for agent-based models validation," Journal of Economic Dynamics and Control, Elsevier, vol. 82(C), pages 125-141.

    More about this item

    Keywords

    International Development;

    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:ags:undpae:307343. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (AgEcon Search). General contact details of provider: http://www.africa.undp.org/ .

    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 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.