Abstract:
The paper examined empirically the causal
relationship existing between public
expenditure growth and inflation in Nigeria
from 1981 to 2012. Employing modern time
series econometric techniques such as;
Augmented Dickey-Fuller (ADF) Unit Root
test, Johansen Co-integration test and the
Granger Causality test. The Augmented
Dickey-Fuller (ADF) for unit root test shows
that two of the variables excluding INFL were
not stationary at level but became stationary
at first difference and the Johansen cointegration
technique indicated the presence of
co-integration among the variables. The study
provides evidence that there is no statistically
discernible relationship between government
expenditure growth and inflation in Nigeria.
we therefore, kick against the ‘old-time
religion’ of restricting aggregate demand by
tight monetary policy as often demonstrated by
the Central Bank of Nigeria through
adjustments in the Monetary Policy Rate
(MPR), but we rather advocate a relaxation of
the MPR with the necessary adjustments when
necessary as inflation is occasionally
necessary to jump-start an economy that is
floundering.
