EFFECT OF INFLATION AND INTEREST RATE ON ECONOMIC GROWTH OF NIGERIA

EFFECT OF INFLATION AND INTEREST RATE ON ECONOMIC GROWTH OF NIGERIA

ABSTRACT

The main objective of this study is to investigate the effect of inflation and interest rate on economic growth of Nigeria. Unit root test (Augmented Dickey- Fuller test) has been exploited to check the integration order of the variables. Acointegration analysis with four variables (c growth, interest rate, GDP, and inflation level) is employed. Study adopted Johansen test. Findings indicated that both trace test and max eigenvalue static showed that the four equations have significant existent 1% or 5%. It means that all variables have long term equilibrium relationship. Study adopted the same four variables to discuss Granger Causality relationship; findings indicated that inflation causes interest rate. On the other hand all other variables are independent with each other. Regression was conducted to test growth rate with interest rate which showed that current interest rate has an influence power on growth rate. Also, regression used to test growth rate with inflation rate; it showed that inflation rate has influence power on growth rate. Finally regression used to test GDP, interest rate, and inflation rate together; results have shown that current GDP and one lag GDP have influence power to growth rate.