Abstract
The relationship between inflation and inflation uncertainty is investigated in Nigeria from 1960m1 to 2020m5. GARCH model are used to generate a measure of inflation uncertainty and then Granger methods are employed to test for causality between average inflation and inflation uncertainty.We go further than previous studies in this country,as we (i) use a recent database,(ii) analyze the sign of causality,(iii) conduct a sub-periods analysis, and (iv) pay attention to the heteroskedasticity and some outliers by using quantile regression.We find a bi-directional causality between inflation and inflation uncertainty. More precisely,we show that a rise in the average rate of inflation leads to more uncertainty about future rate of inflation in Nigeria. Moreover, we show that inflation uncertainty leads to higher average inflation due to opportunistic central bank behavior.Finally we give strong (respectively moderate) support to the Friedman-Ball (respectively Cukierman-Meltzer) hypothesis in the Nigeria economy.
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