Inflation, Exchange Rate, Money Supply, Nigeria


One macro economics goal economist had always had interest in is price stability. This is because it directly affects the standard of living of the people and determines the level of poverty through the purchasing power theory. Such age long interest in developing countries such as Nigeria had been centered on its trend and determining factors, with differing findings, resulting into debate among policy makers. However, those findings mainly ascertained that inflation or price instability is the case in Nigeria and some other developing economies, with exchange rate and money supply playing major roles. This study employs time series econometrics technique, using mainly Augmented Dickey Fuller (ADF) and Philips Peron (PP) for stationarity and cointergration tests to situate Nigeria in this debate in a dynamic world. It uses quarterly data between 1981 and 2009, and finds that, “as it was in the beginning”, inflation remains the order of the day, and exchange rate devaluation and money supply have positive and significant effects on inflation in Nigeria, but in the long run only money supply matters. It then recommends among others, that until Nigeria is fully able to stimulate production for export in the long run, devaluation of the Naira should be discouraged. The study also recommends a continuous contractionary monetary policy to reduce inflation in Nigeria.

Full Text : PDF

  1. Aiyede, E. R. (2002), Decentralizing public sector collective bargaining and the contradictions of federal practice in Nigeria African Study Monographs, 23(1): 11-29 
  2. Ajaikanye O. and Ojowu (1994) Exchange Rate Depreciation and Structure of sectoral prices in Nigeria under an alternative pricing Regime, 1986 - 89 Africa Economic Research consortium.
  3. Ajayi S.I (1988) "Issues of overvaluation and Exchange rate adjustment in Nigeria" Prepared for Economic Development Institute of the World Bank, Washington D.C
  4. Andrew P. Blake, A.P. and Kirsanova,T. (2011), Inflation conservatism and monetary-fiscal policy interactions. International Journal of Central Banking, Vol. 7 No. 2 
  5. Bakare, A. S. (2011), An empirical study of the determinants of money supply growth and its effects on inflation rate in Nigeria. Journal of Research in International Business and Management (ISSN: 2251-0028) Vol. 1(5) pp. 124-129 
  6. Dornbush R. (1987), "Purchasing power party in Eatwell J.M Milgate and P Newman (eds) 1987”. The New Palgrane: A Dictionary of Economics. Vol. 3 (London; Macmillan Press).
  7. Egwaikhide, L. A. Et-al (1984) "Exchange rate Depreciation, Budget Deficit and Inflation - the Nigerian Experience" African Economic Research Consortium.
  8. Elbadawi, LA (1990) "Inflationary Process, Stabilization and the Role of Public Expenditure in Uganda", Mimeo, World Bank.
  9. Engle, R. & Granger C. (1987) "Co-integration and Error-Correction: Representation, Estimation, and Testing" Econometric, 55, 251 - 76.
  10. Fakiyesi, T. (1996) "Further Empirical Analysis of Inflation in Nigeria", CBN Economic and Financial Review, Vol. 34, No.1. Pp. 489 - 499.
  11. Gil-Alana, L. A. et-al (2012), Long memory, structural breaks and mean shifts in the inflation rates in Nigeria. African Journal of Business Management Vol. 6(3), pp. 888-897.
  12. Ikhide, S. I. (1993) "Financial Liberalization and the Inflationary Process: Is There a Link in adjusting Developing Countries?", International Review of Economics and Business, Vol. 40, pp. 157 - 174.
  13. Imimole, B. and Enoma, A. (2011), Exchange rate depreciation and inflation in Nigeria (1986–2008). Business and Economics Journal, Volume 2011: BEJ-28
  14. James,J and Stehn, J. (2008) Modelling the interactions of monetary and fiscal policies in the US. University of Oxford. 
  15. London A. (1989) "Money inflation and adjustment policy III Africa. Some further evidence" African Development Review, Vol. 1. No.2.
  16. Masha, I. (2000), New perspectives on inflation in Nigeria. CBN Economic & Financial Review, Vol. 38 No. 2 34-56
  17. Pinto, B. (1990) "Black Market Premia, Exchange Rate Unification and Inflation in Sub-Saharan Africa" , World Bank Economic Review vol. 3, No.3 pp. 321 - 338.