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BASIC RESEARCH JOURNALS OF BUSINESS MANAGEMENT ANS ACCOUNTS ISSN 2315-6899 ISI IF 0.369
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Basic Research Journal of Business Management and Accounts ISSN 2315-6899 Vol. 5(4), pp. 42-60 October 2016 Copyright 2015 Basic Research Journals

International Scientific Indexing ISI Impact Factor (0.396)

 

 

Full Length Research Paper

 

Introduction of higher currency notes in Nigeria and the dynamics of inflation (1980-2014)

 

*Taiwo, J.N, Ogunwale Oluwayinka O, Afieroho, Evawere

 

1Department of Banking and Finance, Covenant University, Ota, Ogun State

2Department of Banking and Finance, Covenant University, Ota, Ogun State

 

*Corresponding author email: joseph.taiwo@covenantuniversity.edu.ng

 

Received 06 October, 2016; Accepted 17 October, 2016; Published 27 October, 2016

 

Abstract

 

The dynamics of inflationary trends, which has been a macroeconomic concern in Nigeria over the last decade, is considered to be very hazardous to the aggregate economic activity of any country. In order to determine the practical effect of higher currency note introduction on the Nigerian economy, an empirical investigation on the casualty between inflation, currency denomination, fiscal deficit and broad money supply was carried out using the Vector Error Correction Model (VECM) and the Vector Autoregressive (VAR) Model (Forecast Variance and Impulse Response) model. Time series data of 1980 to 2014 were employed and the results confirm that in the long run there is a relationship between inflation, currency denomination, fiscal deficit and broad money supply. The Cholesky ordering (currency denomination, inflation, fiscal deficit and broad money supply) is used in the VAR estimates, which indicates that the shocks in currency denomination affect the other variables and result to inflation. It is therefore recommended that the Nigerian government should implement inflation management policies and also ensure that lower currency notes in circulation are more than higher currency notes in circulation.

 

Keywords: Inflation, Currency Denomination, Fiscal Deficit, Broad Money Supply

 

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