DEFICIT FINANCING, PRICE AND ECONOMIC STABILITY IN NIGERIA: A BOUND TESTING APPROACH

YERIMA I. JABIL, DAVOU RANGAI DAVOU, DAUDA ZIRA

Abstract


This paper empirically examined the impact of deficit financing on price and
economic stability in Nigeria using Autoregressive Distributed Lag (ARDL)/ Bound Testing Approach from 1980-2016. Total deficit financing externally and
disaggregated domestic sources which include Central Bank of Nigeria (CBN).
Deposit Money Banks and Non-bank Public were used as proxies for deficit financing, while Inflation Rates and Gross Domestic Product (GDP) were captured for Price and Economic Stability, respectively. The Bound Testing Analysis which was carried out in a two differently specific models show no Co-Integration between Deficit Finance and Inflation, while that of Deficit Financing and Economic Stability nexus reveals the existence of a strong co-integration. Consequently, the ARDL outcome indicates that Deficit Financing by CBN and Non-Bank Public has positive and significant impact in economic stability while those financed through the Deposit Money Banks and foreign sources have no impact on national output. Thus, we concluded that to achieve sustainable un-inflationary growth in this era of expansionary fiscal policy, Government should finance its deficits domestically through the CBN and Non-Bank Public.


Keywords


Deficit Financing, Price Stability, Economic Stability and Bound Testing Approach.

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International Journal of Management Science Research ISSN ISSN 2536 – 605X(Print)

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