THE EFFECT OF FISCAL AND MONETARY POLICIES ON INFLATION IN NIGERIA (1980-2024)

This study examined the analysis of the effects of fiscal policy and monetary policy on inflation in Nigeria 1980-2024. Secondary data were used in the study. The variables that were utilized include inflation rate (INF), as the dependent variable; and a set of independent variables; government deficit financing (GDF), interest rate (INT), exchange rate (EXR), money supply(MS), taxation revenue (TAX), government expenditure (GEXP) and gross domestic product (GDP). Stationarity test was carried out using Augmented Dickey-Fuller Test (ADF). The result showed a mix of integration of order 1(0) and 1(1) which lends credence to the adoption of ARDL model. The cointegration test revealed the presence of long run relationship. As such, the result of the long-run ARDL cointegration revealed that GDF was highly significant and exert positive impact on INF. Specifically, a percent increase in government deficit (GDF) will lead to an increase of about 2.77 percent in the rate of inflation. The EXR, INT, MS and GEXP exert positive impact on INF in the long-run. Only GDP and TAX was found to exert negative impact on INF. In line with this finding, the study concluded that, fiscal deficit does not create inflation, but inflation causes the fiscal deficit, making it a one-way causation from inflation to the budget deficit. The study recommended that government should strike appropriate balance between recurrent expenditure and capital expenditure, that is, Fiscal deficit should not be geared towards recurrent expenditure rather to productive investments that stimulate growth and generates revenue for debt servicing, there should also be coordination between the policies formulated by the federal government and CBN to achieve price stability