Inflation, Interest Rates and Economic Growth in Nigeria

Abstract

The purpose of this study is to determine the effect of inflation and interest rate on economic growth & to determine the correction measures to inflation and interest rate trend are sustainable in Nigeria between 1981-2014. Secondary data sourced from World Bank databank and Central Bank of Nigeria was used in the study. The study adopted ordinary least square (OLS) method of analysis. The long run relationship between the variables was analyzed using the Johansen integration test. However, the Augmented Dickey Fuller test performed showed that only inflation is not stationary at first difference. The direction of causality and trend analysis was also performed on variables. It found out that Inflation and Interest rate has a negative effect on Economic growth but neither Inflation nor Interest rate granger causes economic growth. The work concludes with the recommendation that policy makers should focus on maintaining inflation at a low rate (single digit) and ensuring interest rate stability.

Key words: Inflation, interest rates, economic growth, Nigeria