Introduction of higher currency notes in Nigeria and the dynamics of inflation (1980-2014)
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Basic Research Journal of Agricultural Science and Review
Abstract
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The dynamics of inflationary trends, which has been a macroeconomic concern in Nigeria over the last
decade, is considered to be very hazardous to the aggregate economic activity of any country. In order
to determine the practical effect of higher currency note introduction on the Nigerian economy, an
empirical investigation on the casualty between inflation, currency denomination, fiscal deficit and
broad money supply was carried out using the Vector Error Correction Model (VECM) and the Vector
Autoregressive (VAR) Model (Forecast Variance and Impulse Response) model. Time series data of
1980 to 2014 were employed and the results confirm that in the long run there is a relationship between
inflation, currency denomination, fiscal deficit and broad money supply. The Cholesky ordering
(currency denomination, inflation, fiscal deficit and broad money supply) is used in the VAR estimates,
which indicates that the shocks in currency denomination affect the other variables and result to
inflation. It is therefore recommended that the Nigerian government should implement inflation
management policies and also ensure that lower currency notes in circulation are more than higher
currency notes in circulation.
Keywords
H Social Sciences (General), HG Finance