Article

Application of Bootstrap Global Journal of Emerging

Market Economies
Simulation and Asymmetric 1–18
© 2020 Emerging Markets Institute, Beijing
Causal Approach to Fiscal Normal University
Reprints and permissions:
Deficit-Inflation Nexus in.sagepub.com/journals-permissions-india
DOI: 10.1177/0974910120919021
journals.sagepub.com/home/eme

Clement Olalekan Olaniyi1

Abstract
This paper investigates the symmetric and asymmetric relationship between fiscal deficits and inflation
in Nigeria within the context of bootstrap simulations with leverage adjustments using the quarterly
frequency data from 1981Q1 to 2016Q4. The findings reveal that there is neither symmetric nor
asymmetric causality between fiscal deficits and inflation in Nigeria. This implies that the fiscal deficits
in Nigeria are not inflationary; and also, that persistent double-digit inflation rates are not the causal
agents spurring perennial increase in fiscal deficits in Nigeria. This study, therefore, concludes that
fiscal deficits could be used to stimulate output level in Nigeria without fueling inflationary spiral in the
economy.

Keywords
Fiscal deficit, inflation, asymmetric causality, bootstrap simulation, Nigeria

JEL Classification: C32, E17

Introduction
Budget deficit is a situation whereby total government expenditure exceeds the total government revenue
over a period of time (Anyanwu, 1997; Bakare et al., 2014; Chimobi & Igwe, 2010; Mohseni Zonuzi et
al. 2011; Onwioduokit, 1999). It is not a problem when it is transient (Hoang, 2014), however, persistent
budget deficits have continued to be a major concern for both developed and developing countries
(Ahmad & Aworinde, 2019; Oladipo & Akinbobola, 2011; Oyejide, 1972) because of its inflationary
 & Terrone, 2005). Theoretically, budget deficit could be a cause of inflation (Cat ao
tendencies (Cat ao  &
Terrone, 2005; Kaur, 2018; Woodford, 1995), a phenomenon of rapid and continuing rise in price level
(Hoang, 2014). Its impact on inflation depends on how long it lasts and how it is financed (Ali & Khalid,

1
Department of Economics, Obafemi Awolowo University, Ile-Ife, Osun State Nigeria.

Corresponding author:
Clement Olalekan Olaniyi, Department of Economics, Obafemi Awolowo University, Ile-Ife, Osun State Nigeria.
Email: richclemento@gmail.com; coolaniyi@oauife.edu.ng; coolaniyi@mtu.edu.ng
2 Global Journal of Emerging Market Economies

2019; Bianchi & Ilut, 2017; Hoang, 2014; Nwakobi et al., 2018). Inflation occurs if budget deficits are
persistent and financed through money creation (Afonso & Jalles, 2019; Cat ao  & Terrone, 2005; Lin &
Chu, 2013; Mishkin, 2004; Sargent & Wallace, 1981). On the other hand, if budget deficits are temporary
it could only produce a temporary increase in the price level, but not inflation, no matter how it is
financed (Hoang, 2014). While monetarists share the view that fiscal deficits are harmful to an economy
(Oladipo & Akinbobola, 2011), the Keynesian economists, on the other hand, are of the opinion that
government fiscal deficits can be used to motivate the aggregate demand side of the economy in order to
stimulate economic growth (Awe & Olalere, 2012), especially during recession period. On the other
hand, it has been observed that persistent inflationary trends in an economy could also force a government
to venture into budget deficits in order to catch up with rising trends in price level (Ahmad & Aworinde,
2019). Thus, inflation could cause budget deficit (Barro, 1979). The consequences of fiscal deficits on
macroeconomic variables such as inflation cannot be underestimated in most of the countries (Olubiyi &
Bolarinwa, 2018; Nwakobi et al., 2018; Olomola & Olagunju, 2004), inclusive of Nigeria.
The relationship between budget deficits and inflation has attracted increasing academic interest
across the globe and the results of their research outputs have continued to be mixed and inconclusive
(Afonso & Jalles, 2019; Chukwu, 2013; Kaur, 2019; Lin & Chu, 2013). While some studies have
established that it is the fiscal deficit that precedes and explains inflation ( Catão & Terrone, 2005; Erkam
& Çetinkaya, 2014; Lin & Chu, 2013; Maio Bulawayo & Seshamani, 2018; Oladipo & Akinbobola,
2011; Olubiyi & Bolarinwa, 2018; Onwioduokit, 1999; Ozurumba, 2012; Ssebulime & Edward, 2019),
some other studies indicate the causal link running from inflation to fiscal deficit (Ishaq & Mohsin, 2015;
Ndanshau, 2012; Ogunmuyiwa, 2008). Also, some empirical studies have established a two-way
causality between the two variables (Chimobi & Igwe; 2010; Onwiduokit, 1999; Oseni & Sanni, 2016).
Still others show evidence of weak or no causal link ( Ahking & Miller, 1985; Akgay et al., 2001; Barro,
1989; Ezeabasili et al., 2012; Faini, 1991; Landon & Reid, 1990; McMillin & Beard, 1982; Niskanen,
1978). Aside from the inconclusiveness of previous studies, the issues of persistent budget deficits and
double-digit inflation rates are fundamental causes of macroeconomic instability (Olomola & Olagunju,
2004; Olubiyi & Bolarinwa, 2018) in Nigeria’s economy and it has continued to be a subject of debate
among policy makers and scholars alike.
Running persistent budget deficits has become a normal phenomenon in Nigeria (Aero & Ogundipe,
2016). The data from Central Bank of Nigeria (CBN) from 1981 to 2016 show that the government
recorded fiscal deficits throughout these years with the exception of 1995 and 1996 (CBN, 2017).
Furthermore, describing Nigeria’s economy as inflationary is not a strange phenomenon as inflation rates
in most of the years from 1981 to 2016 are double digits. The situation in Nigeria seems to support the
theoretical view that fiscal deficits are inflationary, but this cannot be determined on the surface as data
also reveal that inflation rates seem to be single digit in some years when fiscal deficits were recorded.
In addition, the inflation rate in Nigeria skyrocketed to 72.8% in 1995 but the country did not record
deficit in that year. These situations have created an enigma in the fiscal deficit-inflation nexus in Nigeria.
This warrants further academic scrutiny perhaps, using a more refined methodological approach. From
the foregoing, the issue of testing which of the two macroeconomic variables precedes the other is
increasingly gaining attention in empirical research across the globe, although the results are mixed and
inconclusive depending on the diverse methodologies and scope adopted in various studies.
Meanwhile, previously published works on the causality between budget deficits and inflation, to the
best of knowledge, assumed that the impact of a positive shock and a negative shock are the same in
absolute terms and magnitude. In the existing studies, there is no separation between positive and
negative shocks in the data of both fiscal deficits and inflation. This assumption might be too restrictive
as in many cases there is potentially an asymmetric structure regarding the link between inflation and
Olaniyi 3

budget deficits (Ahmad & Aworinde, 2019; Bhat & Sharma, 2018). Also, it has been generally observed
that people react differently to a positive shock compared to a negative one (Granger & Yoon, 2002;
Hatemi-J, 2012). People tend to react more to positive shocks than to negative shocks in both inflation
and fiscal deficits. Based on this fact, it is necessary to allow for this new dimension by separating
positive shocks from negative ones when examining the causal link so as to bring out the evidence of
asymmetric structure in the link which previous studies have neglected.
Similarly, fiscal deficits are often characterized by high level of asymmetric information in an
environment with weak institutions and poor corporate governance practices. The tendency for
opportunistic behavior and sharp practices to thrive in such environment is high, especially in developing
countries. This might result in diverting funds accumulated through deficit budgeting going into
unproductive/wasteful use or ending up in private purses. This may result in people accumulating
unearned money or reckless spending, which subsequently fuels inflationary spiral. Also, data on both
fiscal deficits and inflation often show elements of asymmetric structure in their trends, which
demonstrates inappropriateness of symmetric approaches. Another potential reason for testing
asymmetric causality is the fact that imperfect information prevails in many government activities
(Pragidis, Gogas, Plakandaras & Papadimitriou, 2015; Hatemi-J, 2012, 2014a), which may give room
to opportunistic behavior and fraudulent acts. It is more pronounced in developing countries where
there are weak institutional frameworks which accommodate loopholes and lapses. Hence, the likelihood
of stakeholders to exploit the situation by diverting accumulated public fund through fiscal deficits is
obvious. Unlike previous studies, this study fills the gap by following the footsteps of Hatemi-J (2012,
2014b) to decompose data on fiscal deficit and inflation rate into positive and negative shocks which
enables empirical examination of asymmetric structure in the causal link between fiscal deficits and
inflation in Nigeria. This study also contributes to the previous literature on the causal link by adopting
a bootstrap simulation method with leverage adjustments which produces more accurate critical values
(Hatemi-J, 2012, 2019). The approach has certain advantages as it takes care of variables which are not
normally distributed and volatile (Hatemi-J, 2012). Thus, testing asymmetric causality within bootstrap
simulation approach produces more reliable econometric results.
The remainder of the paper is organized as follows: The following section examines the historical
paths of fiscal deficits and inflation in Nigeria while the next section deals with the issues relating to
review of theoretical and empirical literature. Subsequent sections focus on data description and
methodology adopted in the work followed by the discussion of empirical results. Finally, a brief
conclusion of the study is provided.

Overview the Historical Paths of Fiscal Deficits and Inflation in Nigeria

Double-digit inflation rates and perennial fiscal deficits are two major macroeconomic concerns of the
scholars and macroeconomic policy makers in Nigeria. The profile of Nigeria’s fiscal deficits over the
years has shown that the country recorded deficits in most of the years (1981–2016) covered in this
study. For the period of 36 years in this study, Nigeria recorded surplus in its fiscal balance only in two
years, precisely 1995 and 1996. The trend in Figure 1 reveals that fiscal deficits were recorded in the
remaining 34 years. This shows that the record of Nigeria’s fiscal deficits are persistent occurrences
and not a transient phenomenon. Figure 1 indicates that fiscal deficits in absolute terms appeared not
to be very high in the early 1980s though it oscillated with marginal average increases. The oscillatory
trend of fiscal deficits persisted till 1994 after which surplus balances were recorded between 1995
and 1996.
4 Global Journal of Emerging Market Economies

FISCAL DEFICIT (₦' billion)

500

-500

-1000

-1500

-2000
Figure 1. Historical Trend of Fiscal Deficits in Nigeria (1981–2016)
Source: Author’s Construction from CBN Data.

INFLATION RATE (%)

80
60
40
20
0

Figure 2. Historical Trend of Inflation Rate in Nigeria (1981–2016)

Source: Author’s Construction from World Development Indicator (WDI) Data.

More so, the country continued to experience fiscal deficits from 1997 to 2016. On average, the fiscal
deficits appeared moderate and oscillated between 1997 and 2007. While sharp increases were observed
from 2009 to 2011. The trend changed dimension as the fiscal deficits plummeted marginally and
oscillated between 2013 and 2014. The fiscal deficits rose from ₦835,678 billion to the highest value as
it reached ₦2208,222 billion in 2016. This implies that fiscal deficits have been somewhat on the increase
over the study period. Similarly, the inflation rate as an indicator of macroeconomic stability appears to
be double-digits in most of the years covered in this study. Several theoretical and empirical arguments
subsist that perennial fiscal deficits are inflationary. While a myriad of other stances hold the belief that
inflationary spiral is a causal input that propels governments to incur persistent fiscal deficit to keep up
with persistent increases in general price level. This hinges on the fact that persistent increase in general
price propels government to spend more than its revenue.
The historical paths of inflation rate in Nigeria indicate that the inflation rate is averaged at 19.6
percent for the period 1981–2016. This implies that inflation rates on an average in Nigeria are double-
digits. This may not be regarded as a moderate rate of inflation which ensures macroeconomic stability
in Nigeria. Figure 2 reveals that the inflation rate oscillated between 5.72 and 23.21 percent from 1981
to 1987. The inflation rate, however, rose to 54.51 percent in 1988 but it nosedived marginally to 50.47
percent in 1989. Thereafter, a downward trend continued till 1990 when it fell to 7.36 percent. The trend
Olaniyi 5

changed to an upward trend again until it reached 72.84 percent, which was the highest in the economic
history of Nigeria. The enigma surrounding the fiscal deficit–inflation nexus in Nigeria is that when
inflation rates were 57.03 and 72.84 percent in the years 1995 and 1996 respectively, the country did not
record fiscal deficits in its internal balance in the two years. Surpluses were recorded in the two years
which implied that high inflation rate might not be responsible for persistent running of fiscal deficits in
Nigeria. The inflation rate skyrocketed to the highest level when Nigeria’s government recorded fiscal
surplus. It could mean that there were other factors aside from fiscal deficits responsible for unprecedented
increase in the inflation rate. This scenario raises a question as to the nature of causal relationship
between fiscal deficits and inflation rate in Nigeria. This tends to provide new insights as to which of the
two macroeconomic variables precede each other.
Furthermore, the inflation rate dropped sharply to 8.53 percent in 1997. Thereafter, it oscillated
between 5.38 and 18.87 percent between 1997 and 2016. The trend of inflation rate shows that double-
digit inflation rates dominate in most of the years. It implies that the inflation rate in Nigeria could not
be regarded as moderate and it signals macroeconomic instability. Inflation rate and fiscal deficits are
characterized by cyclical fluctuations and business cycle phenomenon. The asymmetric structures are
well pronounced in the trends of both inflation rate and fiscal deficits. This is reflected in their trends as
they oscillate and the variables are not stable. This invalidates symmetric method in the causality testing
and justifies the necessity of adopting an asymmetric approach. This approach is more informative as it
tends to give clear directions for appropriate policy options. It also tests the causal inference between
different pairs of positive and negative shocks in fiscal deficits and inflation rate.
Furthermore, the coefficient of correlation between fiscal deficits and inflation rate is 0.2609. This
indicates that the correlation between the two macroeconomic variables is weak. Meanwhile, correlation
coefficient is not strong enough to infer causal relationship between the two variables. Also, it cannot give
information regarding how the shocks in one of the two variables respond to produce shocks in the other.
In order to make sense of the fiscal deficit-inflation rate nexus in Nigeria, effort is made in this study to
re-examine the nexus within the framework of asymmetric approach with leverage adjustments. This is
premised on the argument that one of the macroeconomic targets in developed and developing countries
is to maintain price stability and fiscal internal balance. These two targets are more difficult to achieve in
developing countries. Most of these countries record high level of fiscal deficits on a yearly basis. This is
often accompanied by double-digit inflation rates which poses a threat to the macroeconomic stability.

Literature Review

Theoretical Issue
There are two mainstream debates on the fiscal deficit–inflation nexus in economic literature (Sargent
& Wallace, 1981). Monetarists view inflation as a monetary phenomenon (Friedman, 1956) while
inflation is considered a fiscal phenomenon within the framework of fiscal theory of price level
(Kaur, 2019; Leeper, 1991; Sims, 1994, Woodford, 1995). The dominance of these two mainstream
theories is important to the inflationary impact of fiscal deficits (Jalil et al., 2014). Also, the theoretical
model of Catão and Terrone (2005) affirms that sustained fiscal deficits lead to inflation via the
means of money creation. However, Sims (1994) emphasized a higher dominance of fiscal
phenomenon in most cases. The theoretical underpinning behind fiscal deficits is often traced to the
development of Keynesian inspired expenditure-led theory of growth which is the main thrust of his
famous book, “The General Theory of Employment, Interest and Money.” This theory asserts that in
6 Global Journal of Emerging Market Economies

the period of economic downturns of recession/depression, the government has to spur the aggregate
demand side of the economy in order to stimulate economic growth (Oladipo & Akinbobola, 2011).
Keynes advocated deficit financing by government as a veritable means of bailing an economy out
of economic recession/depression in the short-run. This explains that an accumulation of fiscal
deficits through increase in government expenditure or tax cuts tend to increase income and
consumption; thereby raising aggregate demand. The increase in aggregate demand has the tendency
of increasing real output growth on the condition that the economy is operating below full employment
level (Jalil et al., 2014). Likewise, if an economy is already operating at full employment, perennial
fiscal deficits will result in the increase in price level, and subsequently lead to inflation. Following
the Keynesian proposition, government finances fiscal deficits through, namely, borrowing and
monetization from central bank. These two channels which show fiscal deficits are capable of leading
to inflation. This implies that a persistent increase in general price level will propel government to
venture into heavy borrowings to meet up with the inflationary spiral in the country. Thus, the
relationship between fiscal deficits and inflation tends to be bidirectional, as one could cause the
other with possibility of feedback effect.
Thus, this study adopts the Keynesian theory of inflation for analyzing the direction of causality between
fiscal deficit and inflation in Nigeria. The Keynesian theory is considered a short-run theory (Jalil et al.,
2014). It is based on the assumption that there exists unemployed resources in the economy. Fiscal deficit
can be linked to inflation under the Keynesian theory since it supports the use of fiscal deficit to sustain the
economy in periods of economic downtrends. Keynes advocates fiscal deficit, i.e., excess spending relative
to revenue generated in an economy in periods of recession. Also, the fiscal deficit advocated by Keynes if
not properly channeled into productive activities in an economy could generate inflation.

Empirical Evidence
Friedman (1956) opined that inflation is a monetary phenomenon while Leeper (1991) and Sims (1994)
are of the view that fiscal theory of price level which deems inflation to be a fiscal rather than monetary
phenomenon. The argument whether inflation is monetarily or fiscally driven has continued to be a
subject of theoretical and empirical debates (Bianchi & Ilut, 2017). There is a plethora of studies on
whether fiscal deficits are inflationary or not across the globe and the results of their findings are far from
being conclusive (Hondroyiannis & Papapetrou, 1997). Oyejide (1972) argued that persistent growth in
fiscal deficits in less developed countries could hardly take place without some amount of inflation.
A number of research works have been conducted on the link between fiscal deficit and inflation
rates in developed and developing economies and in Nigerian economy in particular. Ssebulime and
Edward (2019) contributed to the empirical examination into the causal relationship between fiscal
deficit and inflation in Uganda for the period 1980–2016. The study, within the framework of
co-integration and error–correction technique, established a causal flow from fiscal deficit to inflation
while the evidence of feedback was found non-existent. It implies that fiscal deficits fuel inflationary
spiral in Uganda. This finding, however, contradicted the research outcome of Ndanshau (2012) which
found no causal link from budget deficit to inflation but rather established causal inference from
inflation to budget deficit in Tanzania.
Contributing to the macroeconomic debates, Ekanayake (2012) also tested the link between fiscal
deficit and inflation in Sri Lanka and found that an increase in fiscal deficits is associated with the
increase in inflation. The study, however, concluded that the inflation in Sri Lanka was not only a
monetary phenomenon but also fiscally driven. Similarly, Cat ao  and Terrone (2005) used a dynamic
Olaniyi 7

estimation method for 107 countries and found a strong and positive relationship between fiscal deficits
in high-inflation developing countries but such relationship was not found in low-inflation advanced
counties. Following the same pattern, Fischer et al. (2002) classified a sample of 94 countries into high-
and low-inflation countries. They showed that fiscal deficits were main drivers of inflation. It was found
that a change in budget balance had no significant effect on inflation in low-inflation countries. The same
findings were established in the research output of Lin and Chu (2013). Similarly, in the case of
Bangladesh, Afrin (2014) examined the fiscal deficit–inflation relationship in Bangladesh and found that
fiscal deficit had an effect on inflation. The study, therefore, suggested that demand management policies
emanating from government revenue and expenditure nexus had an important role in controlling inflation
in the country.
Similarly, Habibullah et al. (2011) examined the long-run relationship between budget deficits and
inflation via co-integration and error–correction approaches to conduct the long- and short-run Granger
causality tests for the period 1950–1999 in 13 developing Asian countries, namely; Indonesia, Malaysia,
Philippines, Myanmar, Singapore, Thailand, India, South Korea, Pakistan, Sri Lanka, Taiwan, Nepal and
Bangladesh. The research outcomes showed that budget deficits are inflationary in all the thirteen
countries considered. On the contrary, Faini (1991) found that the inflation was subdued despite the
presence of large budget deficit in Morocco. This finding contradicts the theoretical postulation that
budget deficit has an effect on inflation.
Also, contributing to the debates, Rother (2004) investigated the effect of discretionary fiscal policies
on inflation in OECD countries between 1967 and 2001. The empirical results revealed that the volatility
in discretionary fiscal policy has contributed to volatility in inflation. Following the same trend, Ramona
(2011) examined the effect of fiscal policy on inflation volatility in Romania and it was found that budget
deficit had a strong impact on inflation volatility. The study concluded that a moderate budget deficit
would be a useful tool for maintaining price stability in Romania.
There are few studies that focused on Nigeria, Ezeabasili et al. (2012) provided an empirical
investigation into the fiscal deficit–inflation nexus during the period of persistent inflationary trends
from 1960 to 2006. This was done via co-integration technique and structural analysis. The findings
indicated that there was an insignificant relationship between fiscal deficit and inflation in Nigeria. It
was further revealed that persistent fiscal deficit was fueling inflationary spiral in Nigeria. On the
contrary, the study by Oladipo and Akinbobola (2011) revealed evidence of unidirectional causality from
budget deficit to inflation in Nigeria. The economic implications of fiscal deficit financing in Nigeria
was equally investigated. This result was also confirmed by Inam (2014) and Ozurumba (2012). These
studies recommended that there is a need for fiscal discipline to be maintained at every level of
government so as to reduce fiscal deficits fueled inflationary spiral in Nigeria. However, the findings of
Ogunmuyiwa (2008) contradicted these results by establishing a unidirectional causality from inflation
to fiscal deficits in Nigeria.
Also, Onwiduokit (1999) examined the direction of causality between fiscal deficit and inflation in
Nigeria. The findings from the study showed that fiscal deficit/gross domestic product (which proxy the
absorptive capacity of the economy) caused inflation. However, the empirical results did not confirm a
feedback effect from inflation to fiscal deficit. These results equally support the research output of Awe
and Olalere (2012) who examined whether budget deficit was inflationary or not in Nigeria within the
period of 1980–2009. The study made use of time-series data which were analyzed via vector error
correction mechanism (VECM) to determine the relationship that existed between the two
macroeconomic variables. The study confirmed the existence of long-run relationship between budget
deficit and inflation. The findings suggested evidence of a unidirectional causality from budget deficit
to inflation. It was recommended that government should cut down its expenditure in order to keep the
8 Global Journal of Emerging Market Economies

inflation rate moderate and suggested that when fiscal deficits were to be incurred, it should be
channeled to productive investments in the country. Contrary to these findings, Olusoji and Oderinde
(2011) via Toda and Yamamoto (1995) approach of causality established no causal link between fiscal
deficit and inflation in Nigeria.
In a more recent study, Oseni (2015) empirically investigated the relationship between fiscal policy
and inflation volatility in Nigeria within the framework of error correction mechanism framework. It was
found that discretionary fiscal policy has a temporary effect on inflation volatility in the short-run and a
significant negative effect on inflation volatility in the long-run. The study further noted that the
fluctuation caused by the level of inflation to its volatility is minimal in the long-run compared to the
short-run effect. Contrary to the findings of Oladipo and Akinbobla (2011) and Awe and Olalere (2012),
Oseni and Sanni (2016) examined the direction of causality between fiscal deficits and inflation volatility
in Nigeria. The results showed that there was bidirectional causality between fiscal deficit and inflation
volatility in Nigeria. Different results established by Oseni (2015) might not be unconnected with the
issue of volatility introduced. Though, similar results were earlier reported by Chukwu (2013) and,
Chimobi and Igwe (2010) who established bidirectional causal relationship between fiscal deficits and
inflation in Nigeria. The results of previous studies both from Nigeria and other countries across the
globe continue to show inconclusive evidence, which warrants further empirical examination.
Meanwhile, all the existing studies neglect the importance of asymmetric structure and bootstrap
simulation in the causal relationship between fiscal deficit and inflation. Thus, the neglect of this crucial
issue could produce spurious econometric results when financial data are not normally distributed with
the feature of volatility (Hatemi-J, 2012; Shahzadet al., 2017). This may lead to wrong policy implications
and leading the government on the wrong path to tackle the problem of perennial fiscal deficits and
double-digit inflation rates in Nigeria. Thus, this study adds to the stock of existing studies by examining
asymmetric structure in the causal relationship, and also, re-examines the symmetric causality within the
framework of bootstrap simulation approach with leverage adjustments.

Methodology

Model Specification
The idea of transforming data (in this case, data on fiscal deficits and inflation) into both cumulative
positive and negative changes originates from Granger and Yoon (2002), and Schorderet (2003) which
was adopted and extended to asymmetric causality by Hatemi-J (2012). This article extends the work on
causality between fiscal deficits and inflation from the realm of symmetry to asymmetry. It is asymmetric
in the sense that positive and negative shocks may have different causal impacts. Leverage on the
assumption of investigating the causal relationship between two integrated variables FIS1t and INF2t (in
this case fiscal deficit  FIS1t  and inflation  INF2t  ) defined as the following random walk processes:

t
FIS1t  FIS1t 1  1t  FIS10  1i (1)
i 1

and
t
INF2t  INF2t 1   2t  INF20   2i (2)
i 1
Olaniyi 9

where t  1, 2, , T , the constant term y10 and y20 are initial values while ε1i and ε 2i are the error
terms. The positive and the negative changes are stated as: 1i  max  1i , 0  ,  2i  max   2i , 0  ,
1i  min  1i , 0  , and  2i  min   2i , 0  , respectively. Therefore, one can express 1i  � 1i  1i and
 2i  �  2i   2i . It follows that:
t t
FIS1t  FIS1t 1  1t  FIS1, 0  1i  1i (3)
i 1 i 1

similarly
t t
FIS1t  FIS1t 1  1t  FIS1, 0  1i  1i (4)
i 1 i 1

Eventually, the positive and negative shocks of each variable can be defined in a cumulative form as
t t t t
FIS1t  1i and FIS1t  1i ; INF2t   2i and INF2t   2i
i 1 i 1 i 1 i 1

It is to be noted that each positive as well as negative shock has a permanent impact on the underlying
variable. The next step is to test the causal relationship between the components constructed. The test for
causality is implemented by using the following vector autoregressive model of order p, VAR (p). In the
case of testing for causality between cumulative positive shocks’ component of the underlying variables
such as  FIS1t , INF2t  . The following VAR (p) model under the assumption of no asymmetric causality
is expressed as follows:
 k k

 FIS1t  0    
1r 21r   FIS     
    k r 1 r 1
 1t  r 1
    (5)

 INF2t    0      INF2t  r   2 
k

  1r  21r 
 r 1 r 1 
In order to incorporate the unit root process, an additional unrestricted lag is included in the VAR
model in Equation (5) as suggested by Toda and Yamamoto (1995) and Hatemi-J (2012). The optimal lag
order is selected using an innovative lag-based of Hatemi-J Information Criterion which is expressed as
follows:

 r  r  n InT  2n In  InT   ,
 
2 2

HJC  In B r  0, ., k . (6)

 2T 
 
 r is the determinant in the VAR model as presented in Equation (5) of the estimated variance–
B
covariance matrix of the error terms with lag order
r, n stands for the number of equation in the VAR model and T denotes the number of observations.
+ +
The null hypotheses that INF1t+ does not cause FIS 2+t and that FIS 2t does not cause INF1t are formulated
as follows:

H 0 :  21r  0, r , where r  1, ., k (7)

and

H 0 :  21r  0, r , where r  1, ., k (8)

10 Global Journal of Emerging Market Economies

Following the studies of Hatemi-J (2012, 2019) and Hatemi-J and El-Khatib (2016), these null
hypotheses are tested via the modified Wald test, which is compared to the bootstrap critical values.
Causality is inferred if Wald test statistic is greater than the bootstrap critical values at the conventional
level. Otherwise, the null hypothesis of no causality is accepted. The Wald test statistic and critical
values (1%, 5%, and 10%) are generated through bootstrap simulation approach with 10,000 iterations
in GAUSS codes provided by Hacker and Hatemi-J (2012). Aside from the combination considered in
Equation (5), all other possible combinations of testing asymmetric causality
 FIS1t , INF2t  ,  FIS1t , INF2t  ,  FIS1t , INF2t   are also considered. Similarly, the combination for
 
symmetric causality testing  FIS1t , INF2t  is explored within the framework of the same bootstrap
simulation method.
Fiscal deficits and inflation is applied to the asymmetric causal model in Equation (5), where the
positive shocks in fiscal deficits  FISt  at time t can be described as periods of increase in fiscal deficits
while the negative shocks in fiscal deficits  FISt  are explained as periods of decrease in fiscal deficits.
Furthermore, INFt + is the positive shock in inflation and it represents times when there are increases in
-
the rate of inflation. On the other hand, INFt is the negative shock in inflation and it also represents
times when there are decreases in the rate of inflation. These negative and positive shocks in fiscal
deficits and inflation rate are generated following the principles of Granger and Yoon (2002), Schoderet
(2003), and Hatemi-J (2012). Practically, the decompositions of data into positive and negative shocks’
components are done via the GAUSS codes provided by Hatemi-J (2014b).

Data Source and Description

In an attempt to increase the sample size and the accuracy of the empirical results in the asymmetric
causality testing, this study follows the works of Faisal et al. (2018), Shahbaz et al. (2017), and Sbia et
al. (2014) by adopting quarterly frequency data from 1981Q1 to 2016Q4. Quadratic match-sum approach
is employed to transform annual frequency data to quarterly frequency data. Data on fiscal deficits and
gross domestic product (GDP) were obtained from Central Bank of Nigeria Statistical Bulletin, 2017
while data on inflation rate were sourced from World Development Indicator, 2017. Fiscal deficits are
measured as fiscal deficits as a share of GDP (Hondroyiannis & Papapetrou, 1997; Karras, 1994; Lin &
Chu, 2013).

Empirical Results and Discussion

Data Decomposition
Following the GAUSS code provided by Hatemi-J (2014b), which emanated from the earlier codes
supplied by Hatemi-J (2012, 2014a), data on fiscal deficits and inflation rate are decomposed into
cumulative positive and negative shocks’ components via GAUSS software package. The graphical
representations of the raw data and their respective positive and negative shocks’ components are
sketched in Figure 3. The data series display elements of unit root process and asymmetric structure in
data distribution which justify the adoption of asymmetric approach of causality within the framework
of bootstrap simulation with leverage adjustments.
Olaniyi 11

FIS INF
0.4 20

0.0
16

-0.4
12
-0.8
8
-1.2

4
-1.6

-2.0 0
1985 1990 1995 2000 2005 2010 2015 1985 1990 1995 2000 2005 2010 2015

FIS+ INF+
9 60
8
50
7
6 40
5
30
4
3 20
2
10
1
0 0
1985 1990 1995 2000 2005 2010 2015 1985 1990 1995 2000 2005 2010 2015

FIS −
INF−

0 0
-1
-10
-2
-3 -20
-4
-30
-5
-6 -40
-7
-50
-8
-9 -60
1985 1990 1995 2000 2005 2010 2015 1985 1990 1995 2000 2005 2010 2015
Figure 3. The Time Plots of Fiscal Deficits and Inflation Rate As Well As their Positive and Negative Cumulative
Sums from First Quarter of 1981 to Fourth Quarter of 2016
Source: Eviews’ Output.
Note. FIS stands for fiscal deficits while INF denotes inflation rate. The cumulative positive sum of each variable is denoted by +
and the cumulative negative sum is tagged by –
12 Global Journal of Emerging Market Economies

Unit Root Tests

In order to avoid spurious results and also to determine the number of additional unrestricted lags to be
included in the augmented VAR of Toda–Yamamoto approach, the stationarity properties of the variables
were examined. Both Augmented Dickey Fuller (ADF) and Phillip–Perron (PP) unit root tests were
adopted. The synopses of results of ADF tests are presented in Table 1 while Table 2 reports the outcomes
of PP tests. Using the conventional 5 percent level of significance as a benchmark, ADF tests indicate
that both fiscal deficits (FIS) and inflation  INF  as well as their respective positive  FIS  , INF   and
negative  FIS  , INF   shocks’ components are not stationary at levels. Meanwhile, they all attain
stationarity at first differences. This implies that the variables are integrated of order one  I 1  .
Similarly, the results of PP tests confirm that all the variables with the exception of raw data of inflation
 INF  , which is stationary at level (intercept only), are not stationary at levels but only become stationary
at first differences. The two-unit root tests reveal that the variables contain one-unit root process. In line
with the Toda and Yamamoto (1995) and Hatemi-J (2012), it shows that there is a need to include extra
one unrestricted lag in the VAR model as specified in Equation (5). In addition, it should be hinted that
the results of cointegration tests are not reported. This is consistent with the proposition of Toda and
Yamamoto (1995) and Hatemi-J (2012) that co-integration is not a prerequisite for testing causality
between integrated variables within the VAR framework once additional unrestricted lags are included.

Table 1. Unit Roots Test (Augmented Dickey–Fuller)

Level   First Differences

Variables Intercept Intercept and Trend Intercept Intercept and Trend
FIS –2.4731 –3.3436* –4.4360*** –4.4189***
INF –2.6254* –2.9341 –4.0165*** –3.9979***
+
FIS –1.6572 –1.5860 –7.9254*** –8.0700***
INF+ –2.0032 –1.2454 –6.8135*** –7.0487***
-
FIS –1.3590 –1.6839 –7.8495*** –7.9149***
-
INF –1.4984 –1.1942   –6.0424*** –6.1601***
* and *** denote levels of significance at 10% and 1% respectively
Source: Author’s Computations

Table 2. Unit Roots Test (Phillips–Perron)

Level   First Differences

Variables Intercept Intercept and Trend Intercept Intercept and Trend
FIS –2.5470 –3.1131 –6.5968*** –6.5386***
INF –2.8898** –2.9605 –5.8389*** –5.8123***
+
FIS –1.7634 –0.9285 –7.7282*** –7.6919***
INF+ –2.0530 –0.9577 –6.7206*** –6.9735***
-
FIS –1.7933 –1.6495 –7.8495*** –7.8903***
INF- –1.8939 –0.9871   –6.1012*** –6.1947***
Significance at *10% and ***1% respectively.
Source: Author’s Computations.
Note: * and *** denote levels of significance at 10% and 1% respectively
Olaniyi 13

The Empirical Findings on Fiscal Deficit–Inflation Nexus

Consistent with the works of Hatemi-J and El-Khatib (2016) and Hatemi-J (2012), the causality tests
are carried out via bootstrap simulations with leverage adjustments in the GAUSS code provided by
Hacker and Hatemi-J (2012). In order to obtain more accurate and reliable critical values, 10,000
iterations were done in each case. The results of the symmetric and asymmetric causality tests are
reported in Table 3. All the possible combinations were examined, and the findings revealed that there
was neither symmetric nor asymmetric causal links between fiscal deficits and inflation rate in Nigeria.
The bootstrapped symmetric causality tests suggest evidence of no causal flow between the two
macroeconomic variables. This implies that persistent fiscal deficits recorded over time do not cause
inflationary spiral in Nigeria. The likelihood of fiscal deficits propelling and fueling the problem of
inflation in Nigeria is non-existent. Thus, the continuous and persistent increases in the prices of goods
and services are not attributable to perennial fiscal deficits in the country. It could be inferred that fiscal
deficits are not causing and fueling inflation in Nigeria. On the other hand, it also means that the
persistence of double-digit inflation rates’ syndrome in Nigeria cannot be regarded as the reason that
spurs government to embark on accumulation of fiscal deficits. This suggests that the Nigerian
government could not justify inflationary phenomenon in Nigeria as a reason for accumulating deficits
to catch up with increase in price level. It is very obvious that fiscal deficits are not accumulated so as
to meet up with the increases in general price level in the country.
This is at variance with the theoretical proposition that budget deficits could be a cause of inflation
(Cat ao
 & Terrone, 2005), most especially within the context of the fiscal theory of price level which
suggests that persistent fiscal deficits tend to trigger inflationary spiral (Kaur, 2018; Woodford, 1995). It
shows that persistent fiscal deficits in Nigeria are not financed through money creation (Cat ao  & Terrone,
2005; Lin & Chu, 2013; Mishkin, 2004; Sargent & Wallace, 1981), hence it does not trigger inflationary
spiral. The idea that fiscal deficits are inflationary in Nigeria is not substantiated by these findings; thus,
the notion does not seem to be valid. On the global scene, this research output is consistent with the
findings of Akgay et al. (2001) Tiwari et al. (2012), Domaç and Yücel (2005), Loungani and Swagel
(2003), Komulainen and Pirttilä (2002), Karras (1994), De Haan and Zelhorst (1990), Click (1998), and
Metin (1998) which established that fiscal deficits are not inflationary. It, however, contradicts the works
of Maio Bulawayo and Seshamani (2018), Jalil et al. (2014) and Makochekanwa (2011) which found
causality from fiscal deficits to inflation, and Sargent and Wallace (1981) which established the evidence
of persistent fiscal deficit as a cause that fuels inflationary spiral.
In specific terms, these results, however, stand incongruent with the existing works focused on Nigeria
such as Olubiyi and Bolarinwa (2018), Inam (2014), Chukwu (2013), Awe and Olalere (2012), Ozurumba
(2012), Oladipo and Akinbobla (2011), and Onwiduokit (1999) which established causal flow from
deficits to inflation. Similarly, it stands inconsistent with the research outcomes of Ogunmuyiwa (2008)
which found causality from inflation to fiscal deficits, and Oseni (2015) and Chimobi and Igwe (2010)
which found bidirectional causal links in Nigeria. Meanwhile, it supports the findings of Nwakobiet al.
(2018), which established fiscal deficits as non-inflationary factor in Nigeria and also confirms the
results of Olusoji and Oderinde (2011) which established no causal link between fiscal deficits and
inflation in Nigeria.
The uniqueness of the findings of this study comes from the different approach of bootstrapped
causality adopted. The results are more robust and reliable because the method of bootstrap simulation
used takes care of the inherent weakness in the previous studies (Hacker & Hatemi-J, 2012; Hatemi-J,
2012). These results suggest that fiscal deficits in Nigeria could be used as a macroeconomic tool by
14 Global Journal of Emerging Market Economies

government to foster and boost the level of economic activities without causing inflationary spiral in the
economy. It also implies that fiscal deficits and inflation in Nigeria can be designed and strategized
independently in the development agenda for the country. This is inferred because fiscal deficits do not
cause inflationary spiral, and inflation also does not spur Nigeria’s government to accumulate fiscal
deficits. It is an indication that macroeconomic agendas of fiscal discipline and moderate inflation are
meant to be pursued separately not as if one causes the other. Fiscal deficits can be used to motivate
aggregate demand through increased expenditure or tax cuts which are capable of increasing the output
level. This works perfectly as the economy is still operating below the full employment capacities. This
is possible as the findings indicate that fiscal deficits are not inflationary in Nigeria.
From the perspectives of asymmetric structure in the fiscal deficit–inflation nexus, more detailed
pieces of information to support the findings on the symmetric causality are provided by the results of
asymmetric causality in Table 3. It is evident that increases in fiscal deficits do not cause increases in
inflation rate  FIS   INF   . Also, inflationary spiral in Nigeria is not a driving force and causal agent
that triggers persistent increases in fiscal deficits  INF  FIS  . Similarly, causal links are not found
 

in the pairs of negative shocks in fiscal deficits and inflation  FIS  ,� INF   . It implies that falls in fiscal
deficits do not lead to falls in inflation rate in Nigeria. All other combinations are considered but none
indicate evidence of clear causality. These reaffirm the independent relationship between fiscal deficits
and inflation in Nigeria. The non-existence of asymmetric causality between fiscal deficits and inflation
rate in Nigeria does not invalidate the possibility of establishing such for some other countries. The
bootstrap simulation of causality and asymmetric structure in the causal relationship between fiscal
deficits and inflation need to be examined for other countries. Following the recent trends in the literature,
this study has added appeal to the myriad of studies on the link between fiscal deficits and inflation rate
by re-examining the symmetric causality within the framework of bootstrap simulation with leverage
adjustments. Similarly, it has contributed by relaxing the assumption of no asymmetric structure
following the footsteps of Hatemi-J (2012) and Hatemi-J and El-Khatib (2016).

Table 3. The Symmetric and Non-Asymmetric Causality Analysis (A Bootstrap Simulation Approach)

Wald Test Bootstrap Bootstrap Bootstrap Lag

Null Hypothesis Statistic Critical Value 1% Critical Value 5% Critical Value 10% Order
FIS  INF 6.949 18.916 13.782 11.307 6
INF  FIS 0.731 19.240 13.678 11.291 6
 
FIS  INF 0.631 14.823 7.141 4.689 2
 
INF  FIS 0.424 14.558 7.268 4.973 2
FIS   INF  1.621 15.636 7.275 4.861 2
INF   FIS  0.029 15.684 7.584 5.029 2
 
FIS  INF 1.191 16.717 7.597 4.764 2
 
INF  FIS 1.995 15.836 7.338 4.977 2
FIS   INF  3.248 13.367 6.810 4.747 2
INF   FIS  0.370 13.453 7.274 4.965 2
The detonation FIS≠≠> INF means the null hypothesis that variable FIS does not cause variable INF.
*** mean Significance at 1% level of significance.
The number of bootstrap iterations in each case is 10,000.
Source: Author’s Computations.
Olaniyi 15

Conclusion
Following the debates on whether fiscal deficits are inflationary or not, there are a plethora of studies on
the causal links between fiscal deficits and inflation across the globe. These studies have yet to adopt a
methodological approach that captures probable asymmetric structures in the links. Also, a more refined
method that captures non-normality and potential volatility in financial data have not been adequately
applied. In view of these issues, this study follows the footsteps of Hatemi-J (2012) and Hatemi-J and
El-Khatib (2016) to capture the asymmetric structure in the causal link between fiscal deficits and
inflation in Nigeria using a quarterly frequency data from 1981Q1 to 2016Q4. Similarly, the symmetric
causality is re-examined within the context of bootstrap simulation method with leverage adjustments
following the footsteps of Hacker and Hatemi-J (2012).
The results of the findings indicate that there is neither symmetric nor asymmetric causality between
fiscal deficits and inflation in Nigeria. It implies that fiscal deficits are not causing inflationary spiral in
Nigeria. Similarly, it indicates that double-digit inflation rates in Nigeria are not responsible for the
perennial accumulation of fiscal deficits by Nigeria’s government. Nigeria’s case reveals that fiscal
deficits in Nigeria are not inflationary. These findings suggest that fiscal deficits could be used to spur
and stimulate economic activities in Nigeria without fueling inflationary spiral in the economy. The non-
existence of asymmetric structure in the causal link between fiscal deficits and inflation in Nigeria does
not invalidate its importance. There may be evidence of asymmetric structure in the data of other
countries. Thus, other scholars are enjoined to examine asymmetric causality between fiscal deficits and
inflation for other countries.

Declaration of Conflicting Interests

The author has declared no potential conflicts of interest with respect to research, authorship, and/or publication of
this article.

Funding
The author received no financial support for the research, authorship, and/or publication of this article.

References
Aero, O., & Ogundipe, A. (2016). Fiscal deficit and economic growth in Nigeria: Ascertaining a feasible
threshold. https://dx.doi.org/10.2139/ssrn.2861505
Afonso, A., & Jalles, J. T., (2019). A note on inflation dynamics, price volatility, and fiscal activism. Macroeconomic
Dynamics, 1-15 https://doi.org/10.1017/S1365100518000688
Afrin, S. (2014). Fiscal deficits and inflation: the case of Bangladesh. Monetary Policy Review, 8(1), 63–77.
Ahking, F. W., & Miller, S. M. (1985). The relationship between government deficits, money growth and
inflation. Journal of Macroeconomics, 7(4), 447–467.
Ahmad, A. H., & Aworinde, O. B. (2019). Are fiscal deficits inflationary in African Countries? A new evidence from
an asymmetric cointegration analysis. The North American Journal of Economics and Finance, 100999. https://
doi.org/10.1016/j.najef.2019.100999
Akgay, O. C., Alper, C. E., & Ozmucur, S. (2018). Budget deficit, inflation and debt sustainability: Evidence from
Turkey, 1970–2000. In Inflation and disinflation in Turkey (pp. 83–102). Bogazici University Institute of Social
Sciences Working Paper ISS/EC, 12. Routledge.
Ali, K., & Khalid, M. (2019). Sources to finance fiscal deficit and their impact on inflation: A case study of
Pakistan. Pakistan Development Review, 58(1), 27–43.
Anyanwu, J. C. (1997). Nigerian public finance (1st ed.). Onitsha: Joane Publishers.
16 Global Journal of Emerging Market Economies

Awe, A. A., & Olalere, S. S. (2012). The nexus between budget deficit and inflation in the Nigerian economy
(1980–2009). Research Journal of Finance and Accounting, 3(10), 78–92.
Bakare, I. O. A., Adesanya, O. A., & Bolarinwa, S. A. (2014). Empirical investigation between budget deficit,
inflation and money supply in Nigeria. European Journal of Business and Social Sciences, 2(12), 120–134.
Barro, R. J. (1989). The Ricardian approach to budget deficits. Journal of Economic Perspectives, 3(2), 37–54.
Barro, R. J. (1979). On the determination of the public debt. Journal of political Economy, 87(5, Part 1), 940–971.
Bhat, J. & Sharma, N. K. (2018). Identifying fiscal inflation in India-some recent evidence from an asymmetric
approach. http://dx.doi.org/10.2139/ssrn.3139459
Bianchi, F., & Ilut, C. (2017). Monetary/fiscal policy mix and agents’ beliefs. Review of Economic Dynamics, 26,
113–139.
Cat a o, L. A. V., & Terrone, M. E. (2005). Fiscal deficits and inflation. Journal of Monetary Economics, 52, 529–554.
CBN (2017). Central Bank of Nigeria (CBN) statistical bulletin (2017) and online via http://statistics.cbn.gov.ng/
cbn-onlinestats/DataBrowser.aspx. Abuja, Nigeria
Chimobi, O. P., & Igwe, O. L. (2010). Budget deficit, money supply and inflation in Nigeria. European Journal of
Economics, Finance and Administrative Sciences, 19(5), 52–60.
Chukwu, J. O. (2013). Budget deficits, money growth and price level in Nigeria. African Development Review, 25(4),
468–477.
Click, R. W. (1998). Seigniorage in a cross-section of countries. Journal of Money, Credit and Banking, 30(2),
154–171.
De Haan, J., & Zelhorst, D. (1990). The impact of government deficits on money growth in developing
countries. Journal of International Money and Finance, 9(4), 455–469.
Domaç, I., & Yücel, E. M. (2005). What triggers inflation in emerging market economies? Review of World
Economics, 141(1), 141–164.
Ekanayake, H. K. (2012). The link between fiscal deficit and inflation: Do public sector wages matter. Australia
South Asia Research Centre, 14, 1–34.
Erkam, S., & Çetinkaya, M. (2014). Budget deficits and inflation: Evidence from Turkey. The Macroetheme
Review, 3(8), 12–22.
Ezeabasili, V. N., Mojekwu, J. N., & Herbert, W. E. (2012). An empirical analysis of fiscal deficits and inflation in
Nigeria. International Business and Management, 4(1), 105–120.
Faisal, F., Tursoy, T., & Berk, N. (2018). Linear and non-linear impact of Internet usage and financial deepening on
electricity consumption for Turkey: Empirical evidence from asymmetric causality. Environmental Science and
Pollution Research, 25(12), 11536–11555.
Faini, R. (1991). The macroeconomics of the public sector deficit: the case of Morocco (No. 631). The World Bank.
Washington, D.C
Fischer, S., Sahay, R., & Végh, C. A. (2002). Modern hyper- and high inflations. Journal of Economic Literature, 40(3),
837–880.
Friedman, M. (Ed.). (1956). Studies in the quantity theory of money  (Vol. 561). University of Chicago Press.
Chicago, USA
Granger, C. W., & Yoon, G. (2002). Hidden cointegration. University of California, Economics Working Paper
(2002-02).
Habibullah, M. S., Cheah, C. K., & Baharom, A. H. (2011). Budget deficits and inflation in thirteen Asian developing
countries. International Journal of Business and Social Science, 2(9), 192–204.
Hacker, R. S., & Hatemi-J, A. (2010). HHcte: GAUSS module to apply a bootstrap test for causality with endogenous
lag order. Statistical Software Components G00012, Department of Economics, Boston College. United States
Hacker, S., & Hatemi-J, A. (2012). A bootstrap test for causality with endogenous lag length choice: theory and
application in finance. Journal of Economic Studies, 39(2), 144–160.
Hatemi-J, A. (2019). The causal impact of stock market development on economic development in the UAE: An
asymmetric approach. Economia Internazionale/ International Economics, 72(2), 171–184.
Hatemi-J, A. (2012). Asymmetric causality tests with an application. Empirical Economics, 43(1), 447–456. http://
dx.doi.org/10.1007/s00181-011-0484-x
Olaniyi 17

Hatemi-J, A. (2014a). Asymmetric generalized impulse responses with an application in finance. Economic

Modelling, 36, 18–22.
Hatemi-J, A. (2014b). ASCOMP: GAUSS module to transform data into cumulative positive and negative
components, Statistical Software Components G00015, Department of Economics, Boston College. United
States
Hatemi-J, A., & El-Khatib, Y. (2016). An extension of the asymmetric causality tests for dealing with deterministic
trend components. Applied Economics, 48(42), 4033–4041.
Hoang, V. K. (2014). Budget deficit, money growth and inflation: Empirical evidence from Vietnam. MPRA: MPRA
Paper (54488).
Hondroyiannis, G., & Papapetrou, E. (1997). Are budget deficits inflationary? A cointegration approach. Applied
Economics Letters, 4(8), 493–496.
Inam, U. (2014). Budget deficit and inflation in Nigeria: An empirical analysis (1970–2010). Journal of Economics
and Sustainable Development, 5(2), 26–32.
Ishaq, T., & Mohsin, H. M. (2015). Deficits and inflation; Are monetary and financial institutions worthy to consider
or not? Borsa Istanbul Review, 15(3), 180–191.
Jalil, A., Tariq, R., & Bibi, N. (2014). Fiscal deficit and inflation: New evidences from Pakistan using a bounds
testing approach. Economic Modelling, 37, 120–126.
Karras, G. (1994). Macroeconomic effects of budget deficits: further international evidence. Journal of International
Money and Finance, 13(2), 190–210.
Kaur, G. (2018). The relationship between fiscal deficit and inflation in India: A cointegration analysis. Journal of
Business Thought, 8, 42–70.
Kaur, G. (2019). Inflation and fiscal deficit in India: An ARDL approach. Global Business Review. https://doi.
org/10.1177%2F0972150919828169
Komulainen, T., & Pirttilä, J. (2002). Fiscal explanations for inflation: Any evidence from transition
economies? Economics of Planning, 35(3), 293–316.
Landon, S., & Reid, B. G. (1990). Government deficits and money growth. The Review of Economics and Statistics,
72(3), 382–389.
Leeper, E. M. (1991). Equilibria under ‘active’ and ‘passive’ monetary and fiscal policies. Journal of Monetary
Economics, 27(1), 129–147.
Lin, H. Y., & Chu, H. P. (2013). Are fiscal deficits inflationary? Journal of International Money and Finance, 32,
214–233.
Loungani, P., & Swagel, P., (2003). Sources of inflation in developing countries. In A. Razin, E. Helpman, & E.
Sadka, (Eds.), Economic Policy in the International Economy: Essays in Honor of Assaf Razin (pp. 207–232).
Cambridge: Cambridge University Press.
Maio Bulawayo, F. C., & Seshamani, V. (2018). The impact of budget deficits on inflation in Zambia. Journal of
Economics, 6(2), 13–23.
Makochekanwa, A. (2011). Impact of budget deficit on inflation in Zimbabwe. The Economic Research Guardian,
1(2), 49–59.
McMillin, W. D., & Beard, T. R. (1982). Deficits, money and inflation: Comment. Journal of Monetary
Economics, 10(2), 273–277.
Metin, K. (1998). The relationship between inflation and the budget deficit in Turkey. Journal of Business &
Economic Statistics, 16(4), 412–422.
Mishkin, F. S. (2004). The economics of money banking and financial markets (7th ed.). Pearson-Addition Wesley.
New York
Mohseni Zonuzi, J., S Hashemi Pourvaladi, M., & Faraji, N. (2011). The relationship between budget deficit and
inflation in Iran. Iranian Economic Review, 15(28), 117–133.
Ndanshau, M. O. (2012). Budget deficits, money supply and inflation in Tanzania: A multivariate granger causality
test, 1967–2010. Department of Economics, University of Dar es Salaam, Working Paper Series 04/12.
Niskanen, W. A. (1978). Deficits, government spending, and inflation: What is the evidence? Journal of Monetary
Economics, 4(3), 591–602.
18 Global Journal of Emerging Market Economies

Nwakobi, P. C., Echekoba, F. N., & Ananwude, A. C. (2018). Fiscal deficit in an oil dependent revenue country and
selected macroeconomic variables: a time series analysis from Nigeria (1981–2015). European Journal of
Economic and Financial Research, 3(1), 126–167.
Ogunmuyiwa, M. S. (2008). Fiscal deficit–inflation nexus in Nigeria. Indian Journal of Economics, 89(353), 167.
Oladipo, S. O., & Akinbobola, T. O. (2011). Budget deficit and inflation in Nigeria: A causal relationship. Journal
of Emerging Trends in Economics and Management Sciences, 2(1), 1–8.
Olomola, P. A., & Olagungu, M. A. (2004). Fiscal deficit and private consumption behavior in Nigeria: 1970–2001.
The Indian Journal of Economics. LXXXIV (335), 597–607.
Olubiyi, E. A., & Bolarinwa, M. A. (2018). Fiscal deficit and inflation rate in selected African Regional Blocs: A
comparative analysis. Turkish Economic Review, 5(1), 89–101.
Olusoji, M. O., & Oderinde, L. O. (2011). Fiscal deficit and inflationary trend in Nigeria: A cross-causal
analysis. Journal of Economics Theory, 5(2), 37–43.
Onwioduokit, E. A. (1999). Fiscal deficits and inflation dynamics in Nigeria an empirical investigation of causal
relationships. Central bank of Nigeria Economic and Financial Review, 37 (2), 1–6.
———. (1999). Fiscal deficits and inflation dynamics in Nigeria: An empirical investigation of causal
relationships. Central Bank of Nigeria Economic and Financial Review, 37(2), 1–16.
Oseni, I. (2015). Fiscal policy and inflation volatility in Nigeria. The Nigerian Journal of Social and Economic
Studies, 57(1), 1–20.
Oseni, I. O., & Sanni, H. Y. (2016). Does fiscal deficit granger cause impulsiveness in inflation rate in Nigeria? Acta
Universitatis Danubius. Œconomica, 12(4), 208–216.
Oyejide, T. A. (1972). Deficit financing, inflation and capital formation: An analysis of the Nigerian experience,
1957–1970. The Nigerian Journal of Economic and Social Studies, 14(1), 27–43.
Ozurumba, B. A. (2012). Fiscal deficits and inflation in Nigeria. JORIND, 10(3), 357–368.
Pragidis, I., Gogas, P., Plakandaras, V. & Papadimitriou, T. (2015). Fiscal shocks and asymmetric effects: A
comparative analysis. The Journal of Economic Asymmetries, 12, 22–33.
Ramona, M., & Dezsi, E. (2011). Fiscal policy Impact on inflation volatility in Romania in the economic crisis
context. Babes-Bolyai University, 13, 181–187.
Rother, P. (2004). Fiscal policy and inflation volatility. European Central Bank Working Paper Series No 317, pp.
1–40.
Sargent, T. J., & Wallace, N. (1981). Some unpleasant monetarist arithmetic. Federal Reserve Bank of Minneapolis
Quarterly Review, 5(3), 1–17.
Sbia, R., Shahbaz, M., & Hamdi, H. (2014). A contribution of foreign direct investment, clean energy, trade openness,
carbon emissions and economic growth to energy demand in UAE. Economic Modelling, 36, 191–197.
Schorderet, Y. (2003). Asymmetric cointegration. Genève: Université de Genève/Faculté des sciences économiques
et sociales. Geneva, Switzerland
Shahbaz, M., Van Hoang, T. H., Mahalik, M. K., & Roubaud, D. (2017). Energy consumption, financial development
and economic growth in India: New evidence from a nonlinear and asymmetric analysis. Energy Economics, 63,
199–212.
Sims, C. A. (1994). A simple model for study of the determination of the price level and the interaction of monetary
and fiscal policy. Economic Theory, 4(3), 381–399.
Ssebulime, K., & Edward, B. (2019). Budget deficit and inflation nexus in Uganda 1980–2016: A cointegration and
error correction modeling approach. Journal of Economic Structures,  8(1), 3. https://doi.org/10.1186/
s40008-019-0136-4
Tiwari, A. K., Tiwari, A. P., & Pandey, B. (2012). Fiscal deficit and inflation: What causes what? The case of
India. Journal of International Business and Economy, 13(1), 57–81.
Toda, H. Y., & Yamamoto, T. (1995). Statistical inference in vector autoregressions with possibly integrated
processes. Journal of Econometrics, 66(1), 225–250.
Woodford, M. (1995, December). Price-level determinacy without control of a monetary aggregate. In Carnegie-
Rochester Conference Series on Public Policy (Vol. 43, pp. 1–46). North-Holland. Elsevier