MODERATING IMPACT OF GOVERNMENT EXPENDITURE AND OIL PRICE CHANGES ON INFLATION IN NIGERIA: AN ARDL APPROACH
DOI:
https://doi.org/10.18623/rvd.v23.n4.4943Keywords:
Inflation, Government Expenditure, Oil Price, Exchange Rate, ARDL, NigeriaAbstract
This study explores the moderating effect of government spending and oil price changes on inflation in Nigeria from 1986 to 2024, using annual data. Inflation is measured by the Consumer Price Index, while the main explanatory variables include the official exchange rate, broad money supply, oil price, real interest rate, and an interaction term between government expenditure and oil price. An ARDL estimation technique was used and the ADF Unit root tests confirm that all variables are non-stationary at levels but stationary at first difference, suggesting they are integrated of order one. The bounds test reveals a long-run relationship among the variables. In the long run, the interaction term has a positive and significant effect on inflation (coefficient = 0.7906), indicating that rising oil prices and government spending together increase inflation. Oil price alone reduces inflation in the long run (-0.5096), while the exchange rate is positively related to inflation (0.3437), and the real interest rate negatively impacts inflation (-0.0325). In the short run, oil price increases reduce inflation, but higher government spending during oil booms reverses this effect. The error correction term suggests that 33% of deviations from equilibrium are corrected annually.
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