Budget Deficit And Inflation In Nigeria: An Empirical Analysis (1970-2010)

Abstract

This paper attempts to empirically investigate the long-run causal relationship between budget deficit and inflation in Nigeria within the period 1970 to 2010. Employing a multivariate co-integration regression technique it was empirically confirmed that there exists a causal long-run relationship between budget deficit and inflation with the direction of causality running from budget deficit to inflation. The paper concludes that what should be of utmost concern to policy makers should not necessarily be the level of budget deficit but the various channels of financing the deficit and the ability of the productive base of the economy to absorb the impact of such financing.

Keywords: Budget Deficit, Inflation, Money Supply (M2), Nigeria.