The Dynamics of Inflation Rates in a Consumer Driven Economy

Abstract

The research was motivated by the conviction that inflation entails sizeable economic and social cost, and that for achieving a sustainable economic growth, management of inflation is a prerequisites. Co-integration and autoregressive error correction model approach was used to investigate the effect of money supply, fiscal deficits and export on the relative effectiveness of fiscal policy in Nigerian consumer driven economy. The study reveals there is a significant causal relationship between gross domestic product (GDP) and the variables considered in the research. The Granger causality outcomes demonstrate that t here is no causality between money supply and inflation in Nigeria within the study period, meaning that there are different economic conditions that are key determinant of inflation in Nigeria. We conclude that fiscal policies have a significant influence on the output growth of the economy, and recommend that the Central Bank of Nigeria should guarantee an exchange rate stability and sound monetary surveillance, look inward for ways to regulate the interest rates that will encourage private and foreign investors to transform our consumer driven economy.