Does Fiscal Deficit Granger Cause Impulsiveness in Inflation Rate in Nigeria?
Does Fiscal Deficit Granger Cause Impulsiveness in Inflation Rate in Nigeria?

Summary/Abstract: This study examines the direction of causality between fiscal policy and inflation volatilityin Nigeria for the periods 1981 to 2014. Studies have examined the relationship between fiscal policy and inflation volatility without taking cognizant of the direction of relationship that exist between the two variables, hence this study. The study employs quarterly time series data on fiscal deficit and consumer price index (measure of inflation rate) from 1981:1 to 2013:3 and obtains from the central bank of Nigeria statistical bulletin 2014 while the volatility data is generated through GARCH (1,1)method and analyze using the Pairwise Granger Causality Test. The results of the study showed that there is bi-directional causality between fiscal deficit (𝐹 − 𝑠𝑡𝑎𝑡𝑖𝑠𝑡𝑖𝑐 = 5.86 & 3.96; 𝑃 < 0.05) and inflation volatility. The implication of this result is that volatility in inflation rate is traceable to the persistent nature of the excess government expenditure over revenue of the Nigerian economy and viceversa; this will inform the government, policy makers and individual the reasons for continuousfluctuation in the prices of goods and services in the country. The paper contributes to knowledge byproviding information on the causes of fluctuation in inflation rate in Nigeria.

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