A. F. Babalola, Adebiyi Oyeyemi (PhD)


This study examines the direction of causality among the two variables. This is with a view to providing empirical insight into the relationship between budget deficit and inflation rate in Nigeria. Secondary data were used in this study. Data on inflation rate, budget deficit exchange rate, Gross Domestic Product (GDP) trade balance were collected from World Development Indicator (WDI) and Central Bank of Nigeria (CBN) Statistical Bulletin. Granger Causality pair wise test was conducted in determining the causal relationship among the variables. The result showed that there was causal relationship from inflation to budget deficit (F = 6.3, P < 0.005), while there was no causal relationship from budget deficit to inflation was significant (F = 1.2, P > 0.05). This implies that a uni-directional causality from inflation to budget deficit exist in Nigeria. Furthermore, the result showed that inflation affects budget deficit directly and indirectly through fluctuations in exchange rate and balance of trade in the Nigerian economy.


budget deficit, consumer price index, exchange rate, gross domestic product, trade balance, time series models.

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