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Bullion

Keywords

Deficit financing, Price stability, Economic development, Economic stability, Bound testing approach

Abstract

This research work empirically examines the impact of deficits finance on price and economic stability in Nigeria using Autoregressive Distributed Lag (ARDL)/Bound testing approach from 1980-2016. Total deficit financed externally and a disaggregated domestic source which includes CBN, Deposit Money Banks and Non-Bank Public were used as proxies for deficit financing while inflation rates and GDP were captured for price and economic stability respectively. The bound testing analysis which was carried out in a two differently specified models show no cointegration between deficit finance and inflation, while that of deficit finance and economic stability nexus reveals the existence of a strong cointegration. Consequently, the ARDL outcome indicates that deficits financed by CBN and Non-Bank Public have positive and significant impact on economic stability while those financed through the Deposit money Banks and foreign sources hove no impact on National output. Thus, we conclude that to achieve sustainable non-inflationary growth in this era of expansionary fiscal policy, government should finance its deficits domestically through the CBN and Non-bank public.

Author Bio

The author is a staff of Branch Operations Department, Central Bank of Nigeria.

Publication Title

CBN Bullion

Issue

3

Volume

41

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