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GOVERNMENT SPENDING AND INFLATION IN NIGERIA: AN ASYMMETRY CAUSALITY TEST
Abstract—The paper, using annual data sourced from Statistical Bulletin published by Central Bank of Nigeria, examines asymmetry causal relationship between government spending and inflation in Nigeria from the period of 1970 to 2010. The asymmetry causality test shows that a uni-directional causality exists from negative government expenditure changes (low or contractionary government spending) to positive inflation changes (high inflation) in the Vector Autoregression (VAR) model. The finding implies that inflationary pressure in Nigeria is state dependent, that is high inflation is caused by low or contractionary government spending.
Keywords—Asymmetry Causality Test, Inflation, Government spending, Nigeria.