Internal and external drivers of inflation in Nigeria

Abstract

This study contributes to the literature on inflation dynamics by examining whether internal or external factors drive inflationary pressure in Nigeria. Using the annual time series data from 1981 to 2017 and applying Johansen cointegration analysis, the vector error correction mechanism and the impulse response function, the study reveals some compelling evidence to suggest that external forces are responsible for inflationary pressure in Nigeria. The results, amongst others, reveal that: external drivers – exchange rate, imported inflation and openness – induce a positive and direct relation to inflation. This is because a percentage change in these variables results in an increase in inflation of 0.49%, 0.47% and 4.28%, respectively, on average, ceteris paribus; the internal drivers – government expenditures, net food exports and lending interest rate – dampen inflation by 0.48%, 1.70% and 0.02%, respectively, on average, ceteris paribus; there is evidence of cointegration indicating that 57.48% of short-run errors will be corrected in the long run; imported inflation contributes to a deviation of about 33% deviation in the first five periods and accounts for cumulative average of over 100% deviation in inflation. Policy implications are discussed.

Real Deposit Rate and Credit Supply Nexus in ECOWAS Evidence From DCCE-MG and PMG Techniques

“…The saving choice due to increase in the real deposit rate contributes to the pool of loanable funds which drives credit supply because financial intermediation thrives when pooled funds from savers are channelled to demanders of credits. Similar studies have also reported the positive relation between the deposit rate and financial intermediation (Odhiambo, 2010;Adeleye et al, 2018;Adeleye et al, 2019). A salient condition for the existence of a long-run relationship (dynamic stability) is that the coefficient on the adjustment term be negative and lies between 0 and 1.…”

Agro-industrialisation and financial intermediation in Nigeria

“…Without any loss of consistency, this approach accommodates interactions among the variables in the system. This view is also supported by Lin (2006), who affirms that a further advantage of the IRF is that it can also be used to evaluate the effect of a policy change on the target variable(s). The generalized impulse response function of y t at horizon h is defined as:…”

Agro-financing and food production in Nigeria

“…To achieve the objectives, we apply the Johansen and Canonical cointegration techniques to empirically examine the long-run contributions of agrofinancing to food production. Following Adeleye et al (2019), the impact of shocks on food production using the impulse-response analysis is engaged.…”

“…model (Adeleye et al, 2019;Gershon et al, 2019). An impulse response function (IRF) explains the reaction of an endogenous variable to one of the innovations in the vector autoregression (VAR) system.…”

“…Therefore, it is vital to scientifically ascertain that the series do not exhibit a unit root to avoid obtaining spurious results. In essence, the variables must be stationary (Adeleye et al, 2019;Adeleye et al, 2018). Therefore, to determine the stationarity of the five variables, they are subjected to tests using the Augmented Dickey-Fuller (ADF), and Phillips-Perron (PP) approaches.…”