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Are fiscal deficits inflationary in Nigeria? New evidence from bounds testing to cointegration with structural breaks
In this paper, we model the relationship between fiscal deficit and inflation 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. T...
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Published in: | Ekonomski anali 2021, Vol.66 (228), p.123-147 |
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Main Authors: | , , |
Format: | Article |
Language: | English |
Subjects: | |
Citations: | Items that cite this one |
Online Access: | Get full text |
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Summary: | In this paper, we model the relationship between fiscal deficit and inflation
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 pretest 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 considered. The
results imply that a fiscal management process that does not encourage
increased revenue and reduce fiscal deficits will further worsen the level
of inflation in the country. |
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ISSN: | 0013-3264 1820-7375 |
DOI: | 10.2298/EKA2128123F |