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| Title: | Fiscal deficit and inflationary process in an open economy: the case of Nigeria |
| Author: | Ndebbio, John E.U. |
| Year: | 1998 |
| Periodical: | The Nigerian Journal of Economic and Social Studies |
| Volume: | 40 |
| Issue: | 3 |
| Pages: | 411-431 |
| Language: | English |
| Geographic term: | Nigeria |
| Subjects: | fiscal policy monetary policy |
| Abstract: | This article investigates the interlinking factors between fiscal deficit, money supply and inflation in Nigeria for the period 1970-1992. Through the Granger causality test it establishes that, for the Nigerian economy, the relationship between fiscal deficit and inflation is bidirectional. To examine the effects of fiscal deficit and inflation through money supply and vice versa, four regression equations with feedback mechanisms were developed, and they include price, government expenditure, government revenue and imports. For policy direction, simulation experiments using two scenarios - increasing and decreasing money stock by ten percent - were carried out. Increasing money stock by ten percent led to a substantial increase in price level and government expenditure, and a moderate increase in government revenue and imports. With a ten percent decrease in money stock, a decrease in most of the endogenous variables was reported. In conclusion, the author urges the Nigerian authorities to pursue a 'regulated/controlled' monetary policy, to narrow the country's fiscal deficit gap by putting a stop to ad hoc or undisciplined government expenditure, and to embark on specific policies aimed at achieving increased and sustained production in all sectors. App., bibliogr., sum. |