APPLICATION OF BOX-JENKINS METHODOLOGY TO NIGERIA'S INFLATION DYNAMICS

APPLICATION OF BOX-JENKINS METHODOLOGY TO NIGERIA'S INFLATION DYNAMICS

Authors

  • AMINU MUHAMMAD MUSTAPHA
  • ANAS IBRAHIM KUBALU

Keywords:

Inflation, ARIMA, Forecast, CPI, Box and Jenkins

Abstract

The paper investigates whether monthly inflation data can be used to develop a fitting
autoregressive model for inflation in Nigeria and evaluate the forecasting ability of the
estimated model. The study used monthly consumer price index ( CPI) data from January 1995
to December 2013 in developing the model using autoregressive integrated moving average
(ARIMA) model of Box & Jenkins (1976). Differencing method was used to obtain stationary
process of the CPI series. The best fitted model depicting the relationship between past values
of inflation and the present values was found to be ARIMA (1, 1, 2). The parameters of the
model were found individually and jointly statistically insignificant, showing that it lacks
efficacy in using information on the past behaviour of inflation to predict the future inflation
rate. In testing the forecasting performance of the model, all the relevant statistics indicates
the robustness of the model. It is recommended that in order to keep inflation under control,
there is need for greater transparency in monetary policy making and
implementation.Government should display a high sense of transparency in the fiscal
operations to bring about realistic fiscal deficits. Fiscal deficits recorded should be channelled
to productive investments like road constructions, electricity provision, and other overheads
that will serve as incentives to increased productivity and high Gross Domestic Product
(GDP). Therefore, deficit financing should only be applied in a situation of true economic
recession to reduce the incidence of inflation

Additional Files

Published

2023-08-08

Issue

Section

Articles