Fiscal Deficits and Inflation in Ghana (original) (raw)
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An Empirical Analysis on the Relationship between Fiscal Deficit and Inflation in Nigeria
The implications of fiscal deficits on key macroeconomic variables have led to a large body of literature examining the question of whether economies with large and persistent fiscal deficits have high inflation rate. In line with this argument, this research work examines the long-run relationship between fiscal deficit and inflation in Nigeria using Autoregressive distributed lag (ARDL) approach to cointegration on a time series data spanning from 1970 to 2011. It further examines the nature and direction of causality between the two variables. The ARDL result reveals that there is insignificant long run relationship between fiscal deficit and inflation. There is also no significant relationship between exchange rate depreciation and inflation. However, there is a positive and significant long-run relationship between interest rate and inflation. On the direction of causality, uni-directional causalities running from fiscal deficit to inflation and also from inflation to interest rates were evident, while no causality between inflation and exchange rates was recorded. The study therefore, concludes that the sustained fiscal deficit maintained over the years is not the cause of inflation. Rather, interest rate is the main cause of inflation, as such policies targeted at inflation control could be best achieved if geared towards reducing interest rate.
Fiscal Deficits and Inflation in Nigeria
International Journal of Academic Accounting, Finance & Management Research(IJAAF), 2023
The broad objective of this study was to investigate the effects of fiscal deficit on inflation in Nigeria using annual time series data from 1981 to 2019. The specific objectives include, to examine the short run effect of fiscal deficit on inflation in Nigeria; examine the long run effect of fiscal deficit on inflation in Nigeria; and ascertain the nature and direction of the causal relationship between fiscal deficit and inflation in Nigeria. The Autoregressive distributed lag (ARDL) and cointegration bound test estimation technique was adopted for the study. The ARDL results reveal that there is a significant and negative long run relationship between fiscal deficit and inflation. There is also a significant and positive relationship between exchange rate and inflation in the long run. However, there was an insignificant long-run relationship between money supply and inflation. On the direction of causality, unidirectional causality running from fiscal deficit to inflation was recorded. The study, therefore, concluded that chronic deficit spending over time is the root cause of inflation in Nigeria. As a result, the answer to Nigeria's price instability falls under the scope of the fiscal policy framework, as such policies targeted at inflation control could be best achieved if geared towards controlling budget deficit and exchange rate in Nigeria. The study therefore recommended a sustained budget deficit in order to provide the infrastructure needed to harness untapped and underutilized human and material resources.
Asymmetric Effects of Fiscal Deficit Financing and Inflation Dynamics in Ghana
Journal of Sustainable Development
Fiscal Deficit Financing (FDF) has been unsustainably high in Ghana and this has led to unstable and high inflation episodes since 1980. The FDF averaged 4.6% from 2005-2011 and 6.9% to 2012-2018, while inflation averaged 11.0% and 13.1% relative to medium-term to long-term inflation target of 8.0% in the same periods, respectively. Previous studies on deficit financing-inflation nexus in Ghana have primarily focused on linear and symmetric relationship, thereby ignoring the asymmetric policy effects of FDF on inflation dynamics. Disregarding the asymmetry of FDF could impact negatively on efforts of Bank of Ghana in forecasting and controlling inflation effectively. To address this problem, this study was therefore designed to investigate the asymmetric policy effects of FDF on inflation dynamics in Ghana over the period 1980-2018. The fiscal theory of the price level provided the theoretical framework. The Non-linear Autoregressive Distributed Lag (NARDL) econometric methodology w...
An Empirical Analysis of Fiscal Deficits and Inflation in Nigeria
The relationship between fiscal deficits and inflation has provoked considerable interest in the macroeconomics literature. While the theory postulates that fiscal deficits lead to inflation, empirical research has been less conclusive about the relationship. This paper reexamines the issue in the context of a developing country, Nigeria, using data over 1970-2006, a period of persistent inflationary trends. We adopted a modeling approach that incorporates cointegration techniques and structural analysis. The results reveal a positive but insignificant relationship between inflation and fiscal deficits in Nigeria. We did not also find any strong evidence linking past levels of fiscal deficits with inflation in Nigeria during the period. Rather, we report a positive long run relationship between money supply and inflation in the Nigerian economy, suggesting that money supply is procyclical and tends to grow at a faster rate than inflation rate.
Dynamic Analysis of the Effect of Fiscal Deficit on Inflation in Nigeria
Academic Journal of Economic Studies, 2019
The study is aimed at investigating the short-run and long-run dynamic effects of fiscal deficit on inflation in Nigeria. Autoregressive Distributed Lag Model (ARDL) was applied to time series data from 1970–2016 (of Nigeria). The result, of the estimation, reveals that fiscal deficit is inflationary during the short-run as well as the long-run of the period of study. Findings of the research are limited to Nigeria whose data were used, based on ARDL as the econometrics techniques applied, for a period 1970–2016. The fiscal spending of Nigerian government is one of the factors contributing to inflationary pressure in the country as seen in the findings of the research. The paper was able to prove empirically, the existence of the positive effect of fiscal deficit on inflation in Nigeria, using Nigerian data and also suggest for decision makers in the country to be cautious in terms of the way, the Nigerian government is financing its expenditure through borrowing and fiscal spending.
Fiscal deficit and inflation rate in selected African Regional Blocs: A comparative analysis
Turkish Economic Review, 2018
Abstract. This study investigates the effect of fiscal deficit on inflation rate in selected African countries. The data collected spans 22years from 1994 to 2015. The countries considered are Egypt, Kenya, Mali, Nigeria, and South Africa. The selection of these countries was based on the countries with highest fiscal deficit or inflation rate in each of the geo-political zones in Africa. Based on the nature of the data, an autoregressive distributed lag (ARDL) in the context of Keynesian model of aggregate expenditure was specified and estimated. The result shows that inflation effect of fiscal deficit is country specific and period specific. Out of the five countries considered, it is only in Nigeria and South Africa that inflation is affected positively by fiscal deficit in the short run. In the long run, Nigeria is the only country where inflation rate is affected positively by fiscal deficit. In Egypt, there was no short run effect of fiscal deficit while in Kenya, there w...
FISCAL DEFICIT AND INFLATION IN AN OIL RICH EXPORTING COUNTRY: EVIDENCE FROM NIGERIA
This research work examined the long run relationship between fiscal deficit and inflation in Nigeria as well as the effect of fiscal deficit on inflation covering a time frame of 1981 to 2015. Data sourced from Central Bank of Nigeria statistical bulletin were diagnosed for heteroskedasticity, serial correlation, Ramsey Reset and multicollinearity. We exercised econometric tools such as unit root, Johansen co-integration, Granger causality and Vector Error Correction Model to achieve the aim of the study. Johansen co-integration established that there is a long run relationship between fiscal deficit and inflation in Nigeria as evidenced on the trace and maximum eigenvalue depiction of two co-integration equation each at 5% level of significance. The granger causality impact assessment result showed fiscal deficit does not significantly influence inflation in Nigeria. In view of the fact that fiscal deficit does not play down inflationary trend in Nigeria, this study recommends that deficit financing by government should be discontinued with and reduction in fiscal deficit capable of keeping government spending at sustainable limits be upheld.
Regime Effects of Fiscal Deficit Financing and Inflation Dynamics in Ghana
Theoretical Economics Letters , 2022
Fiscal deficit financing is confirmed in both theoretical and empirical literature to often lead to higher-than-expected inflation. The unsustainable regime of fiscal deficit financing in Ghana over the years had contributed to price instability in Ghana. Previous studies on deficit financing-inflation nexus in Ghana concentrated completely on linear and symmetric relation while ignoring the effect of regime of fiscal deficit financing on inflation. This study investigated the regime of fiscal deficit financing and its effects on inflation dynamics in Ghana over the 1980-2018 period. The Theory of Fiscal Price Level (TFPL) was adopted as the theoretical framework for the study. The TFPL highlighted the macroeconomic consequences of fiscal dominance over monetary policy actions and how it impacts on price stability due to the financing of government fiscal deficit in a country. The study employed Markov-Switching Regime Dynamic Model (MSRDM) to investigate the regime effects of fiscal deficit financing on inflation. The study revealed the presence of two fiscal regimes in Ghana and that the regime of fiscal deficit financing remained persistent over the study period. The paper further found that fiscal deficit financing had a stronger effect on inflation dynamics in Ghana in the higher regime of fiscal deficit financing while its impact on inflation in the lower regime of fiscal deficit financing remained relatively subdued. The paper recommends that the government of Ghana should adopt fiscal policy actions that could lead to the achievement and maintenance of fiscal sustainability and consolidation consistent with a low inflation regime going forward
International Journal of Academic Research in Economics and Management Sciences, 2019
This study investigated the effect of fiscal deficit on selected macroeconomic variables in Nigeria. Specifically the study examined the effects of fiscal deficit on Nigeria's gross domestic product, determine the impact of fiscal deficit on the level of Money Supply in Nigeria, and ascertain the relationship between fiscal deficit and Inflation Rate in Nigeria. To achieve these objectives, the study employed various econometric techniques such as unit root test, Johansen co-integration, ordinary least square and granger causality test in which variations in the independent variables were regressed on the dependent variable using time series data from 1986-2018. Secondary data casing the time frame were collected from Central Bank of Nigeria statistical bulletin. The results of the analysis indicates that (i) Fiscal Deficit (FD) has positive and no significant effect on Gross Domestic Product (GDP) (ii)Fiscal Deficit (FD) has negative and no significant impact on Money Supply (MS) (iii) Fiscal Deficit (FD) has negative and no significant relationship with Inflation Rate (INFR).The study recommended among others that government should set its priority rights, be more committed to budget implementation and to pay more attention to capital expenditure geared towards growth. Systemic corruption which is the main reason why fiscal deficit has not positively impacted on macroeconomic indicators should be dissuaded in Nigeria. The study further recommended that key government institutions should mount programs that are directed towards restoring the value system, norms and mind-set of Nigerians which corruption has destabilized and made weak to be strong again, otherwise, Nigeria will systematically drift into extinction.