Long-Run and Short-Run Relationship between Budget Deficits and Inflation Rate in Nigeria

Muideen A. Isiaka; Lukuman O. Lamidi; Rasaki O. Kareem; Precious F. Oladotun

doi:10.52589/AJESD-R4V56ZPL

Long-Run and Short-Run Relationship between Budget Deficits and Inflation Rate in Nigeria

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African Journal of Economics and Sustainable Development

Vol. 5Issue 12022pp. 75–82Published 17 March 2022

DOI 10.52589/AJESD-R4V56ZPL

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Abstract:

This study examines the dynamic relationship between budget deficit (BD) and inflation rate (INF) in Nigeria using secondary data extracted from the CBN statistical bulletin. Control variables included are real gross domestic product (RGDP), real interest rate (INTR), exchange rate (EXCHR) and private investment (INV). After obtaining a mixture of I(0) and I(1) variables from the unit root test, the study conducted a co-integration test using the ARDL approach. The results indicate that only RGDP and INTR have significant relationship with INF in the long-run. Budget deficit has no significant influence on inflation both in the long-run and in the short-run. This study concludes that budget deficit cannot be criticized based on its ability to induce inflation and recommends that inflation impact should be given low wait in evaluating budget deficit decisions.

Keywords:Budget Deficit Inflation ARDL Short-Run Long-Run.

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