The Prevailing Inflationary Pressures in Nigeria - What are the Possible Causes? FM-OLS and DOLS Approach

International Journal of Economics and Management Studies

© 2019 by SSRG - IJEMS Journal

Volume 6 Issue 2

Year of Publication : 2019

Authors : Uche Emmanuel, Uruakpa, Peter Chinyere­, Uchenna Onyemaechi

10.14445/23939125/IJEMS-V6I2P105

How to Cite?

Uche Emmanuel, Uruakpa, Peter Chinyere­, Uchenna Onyemaechi, "The Prevailing Inflationary Pressures in Nigeria - What are the Possible Causes? FM-OLS and DOLS Approach," SSRG International Journal of Economics and Management Studies, vol. 6,  no. 2, pp. 26-32, 2019. Crossref, https://doi.org/10.14445/23939125/IJEMS-V6I2P105

Abstract:

This current research was basically an empirical enquiry to determine the contributions of various macroeconomic variables to the observed unstable movements of inflation in Nigeria in recent years. Globally, it is generally accepted that unstable movements of inflation leads to general instability in the macroeconomy. With such understanding, it becomes pertinent to have an objective understanding of the factors that contribute to this unwanted movements as such knowledge will provide practical policy framework to guide against continuous occurrence. Time series data spanning 1981 to 2017 which was obtained from the Central Bank of Nigeria (CBN) statistical bulletin of 2018 was used for the analysis. To provide a reliable and super consistent results, we applied both the FM-OLS and the Dynamic OLS regression techniques after moderating the time varying properties of the data through Elliot-Rothenberg-Stock and KPSS stationarity tests. The results from the Trace and Max-Eigen tests statistic of Johansen method of cointegration provided evidence that the variables have a longrun relationship among them. The elasticities of the coefficients of the variables show that exchange rate movements were the major causes of inflation instability, followed by money supply. It was equally ascertain that Nigeria is currently battling with stagflation (inflationary recession) as there was a negative relationship between RGDP and inflation. The contributions of the other variables like MPR, GEXP and DOP were not the major causes of inflation instability in Nigeria. Based on the outcome of the research, it was recommended among other things that; the Nigerian government should make concerted effort to upscale the local productive capacity of the economy to reduce the level of dependence on foreign made products as this will help in conserving foreign exchange and ensure a favourable exchange rate for the local currency; the monetary authorities should objectively regulate the volume of money supply and ensure that such monies were channeled to sectors that have the capacity of revamping the productive capacity of the economy.

Keywords:

Inflation, FMOLS, DOLS, Macroeconomy, Cointegration.

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