Seigniorage and Inflation in Nigeria: A Toda-Yamamoto Granger Causality Approach

Abstract

This study examine the relationship between seigniorage and inflation in Nigeria between 1990 and 2022. The revenue generated through currency minting for deficit financing is projected to fall short of meeting the government's desired developmental goals due to the burden of substantial debt. The analytical tool utilised in this study was the Toda-Yamamoto Granger Causality approach, utilising time series data. The findings of this study demonstrate that there is sufficient evidence to reject the null hypothesis, which suggests that seigniorage does not have a Granger-causal relationship with inflation. Additionally, the results reveal that government debt leads to an increase in the production of currency as a means to cover budget deficits. This study presents findings that indicate a robust and positive correlation between seigniorage and inflation. Additionally, it suggests that there exists a substantial association between public debt and the government's inclination to create income by monopolising the minting process in order to finance its deficit. It is recommended that the use of seigniorage as a means to compensate for deficits possesses the potential to induce an escalation in the prices of goods and services. Consequently, government policies pertaining to augmenting the money supply within the economy should be carefully considered, especially were the economy is burdened with heavy debt should be carefully selected bearing in mind that inflation is not just a monetary phenomenon but also fiscal phenomena.

Keyword: Seigniorage, Inflation, Debt Burden, Toda-Yamamoto, Budget deficit

DOI: 10.7176/JESD/14-17-06

Publication date: November 30^th 2023