Inflation and Inflation Uncertainty in Nigeria: A Test of the Friedman’s Hypothesis

Authors

Muhammad A. Abamanga, Central Bank of Nigeria, AbujaFollow
Umar Musa, Central Bank of Nigeria, AbujaFollow
Audu Salihu, Central Bank of Nigeria, AbujaFollow
Ubong S. Udoette, Central Bank of Nigeria, AbujaFollow
Valli T. Adejo, Central Bank of Nigeria, AbujaFollow
Offiong N. Edem, Central Bank of Nigeria, AbujaFollow
Hyariju Bukar, Central Bank of Nigeria, AbujaFollow
Chidinma T. Udechukwu-peterclaver, Central Bank of Nigeria, AbujaFollow

Keywords

Inflation, Uncertainty, EGARCH, Friedman hypothesis

Abstract

This paper examines the relationship between inflation and inflation uncertainty in Nigeria. It attempts to test whether the Friedman’s hypothesis – that a rise in the average rate of inflation leads to more uncertainty about future rate of inflation - holds for the country. The monthly inflation data spanning the period 1960:1 to 2014:07 was used. Inflation uncertainty was modeled as a time varying process using a GARCH framework. Exponential Generalized Autoregressive Heteroscedasticity (EGARCH) complemented by seasonal ARIMA (2, 0, 2) (0, 0, 1) was employed to model the inflation uncertainty. Given that inflation series display structural breaks, this was tested and found to be significant which was accounted for in the model. The EGARCH fitted our data better than the symmetric GARCH model. The bivariate Granger Causality test was performed on inflation and its uncertainty; it showed that inflation causes inflation uncertainty in Nigeria. The fitted EGARCH model found strong support for the Friedman’s hypothesis.

Author Bio

The authors are staff of Statistics Department, Central Bank of Nigeria.

Publication Title

CBN Journal of Applied Statistics

Issue

1(a)

Volume

7

Recommended Citation

Abamanga, Muhammad A.; Musa, Umar; Salihu, Audu; Udoette, Ubong S.; Adejo, Valli T.; Edem, Offiong N.; Bukar, Hyariju; and Udechukwu-peterclaver, Chidinma T. (2016) "Inflation and Inflation Uncertainty in Nigeria: A Test of the Friedman’s Hypothesis," CBN Journal of Applied Statistics (JAS): Vol. 7: No. 1, Article 8.
Available at: https://dc.cbn.gov.ng/jas/vol7/iss1/8