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| Nexus between Budget Deficit and Inflation: Granger-Causality Test Approach |
Dr. Chukwuani, Victoria Nnenna and Dr. Egiyi, Modesta Amaka
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Abstract:
Budget deficit- inflation nexus is a recurrent issue in both developed and developing countries of the world which includes Nigeria. Hence the need to know which of the two variables (budget deficit, inflation) causes the other and also, the direction of causality. The aim of this study is to investigate both the nature and direction of causality between these two variables. With the view of providing empirical evidence on budget deficit operation in stimulating economic growth through inflation in Nigeria. The data used in this study was secondary sourced from the Central Bank of Nigeria's (CBN) Statistical Bulletin, 2019, and World Bank database. The Augmented Dickey fuller test was conducted to test the data for stationarity, inflation was found to be stationary at levels I(0), while Deficit Budget became stationary at the first difference I(1). Granger Causality pairwise test was carried out to determine the causal relationship among the variables. The result showed that there was no causal relationship between inflation and budget deficit (F = 0.7, P > 0.05) and vice-versa (F = 1.4, P > 0.05). This also implies that no directional causality from budget deficit to inflation exists in observed dataset.
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