Managing the Inflation Problem in Nigeria using the Fisco-Monetary Approach

Abstract

This study examined empirically the impact of monetary and fiscal policy management on the problem of inflation in Nigeria. Monthly data spanning from January 2010 to October 2016 on inflation rate, interest rate, exchange rate, narrow money, broad money, government capital expenditure and government recurrent expenditure were obtained from Central Bank of Nigeria (CBN) statistical bulletin and fitted into the regression model. Autoregressive Distributed Lag (ARDL) was employed after ascertaining the stationarity properties of the series through the Augmented Dickey-Fuller (ADF) test. The results showed that broad money supply (M2) and Capital Expenditure (CE) were significant and are positively related (short and long run) to inflation in Nigeria. Exchange rate was significant and positively related to inflation in the long run. The study also revealed that Nigerian inflationary situation is driven by monetary and fiscal policies in the long run. Narrow money has no significant impact on inflation problem both in the short and long run in Nigeria. The study concluded that monetary and fiscal policies have positive impact on inflation in Nigeria and recommended that monetary and fiscal policies should be harnessed, coordinated and sustained with the help of Central Bank of Nigeria in order to combat the problem of inflation in Nigeria. (JEL E62, E51, E31)