THE LONG-RUN EFFECTS OF THE DETERMINANTS OF INFLATION ON NIGERIA ECONOMY

This study investigates the long-run effects of key determinants of inflation on the Nigerian economy, with a focus on understanding how macroeconomic variables influence price stability and economic performance over time. The research employs time-series data covering a significant period, utilizing econometric techniques such as the Johansen cointegration test and Error Correction Model (ECM) to examine the existence of long-run relationships between inflation and its determinants, including money supply, exchange rate, interest rate, government expenditure, and gross domestic product (GDP). The findings reveal the presence of a stable long-run relationship between inflation and its explanatory variables in Nigeria. Specifically, money supply and exchange rate are found to exert significant positive effects on inflation in the long run, indicating that excessive monetary expansion and currency depreciation contribute to rising price levels. Conversely, interest rate demonstrates a moderating effect on inflation, while government expenditure shows mixed impacts depending on its composition and efficiency. The results also highlight that inflation adversely affects economic growth by reducing purchasing power, discouraging investment, and creating macroeconomic instability. The error correction mechanism confirms that short-run deviations from long-run equilibrium are corrected at a moderate speed, reinforcing the validity of the long-run model. Based on these findings, the study recommends that policymakers, particularly the Central Bank of Nigeria, adopt prudent monetary policies aimed at controlling money supply growth and stabilizing the exchange rate. Additionally, fiscal discipline and efficient allocation of public resources are essential to mitigate inflationary pressures and promote sustainable economic growth. Overall, the study contributes to the existing literature by providing empirical evidence on the long-run dynamics of inflation determinants in Nigeria and offers policy-relevant insights for achieving macroeconomic stability.