Journal of Emerging Trends in Economics and Management Sciences: Home

Abstract:
This study investigates the relationship between Inflation, Savings and Output in Nigeria, employing Vector Autoregression (VAR) approach. VAR is an active systems of models in which the current level of each endogenous variable in the system depends on past movements of all variables and it determines how much influence each of the endogenous variable have on each other. Ordinary Least Square and Granger causality tests were also conducted along side VAR to augment findings and show robustness of results. Using Time-series data for 1970 to 2010 sourced from Central Bank of Nigeria (CBN) Statistical bulletins for 2007 and 2010 and Annual report for 2010, we estimated VAR models to determine the inter-relationship between the endogenous variables. Generally, the empirical results were impressive. The OLS result indicates that over 90 percent of the variations in Output for the estimation period were captured by the explanatory variables. Each of the individual coefficients of the explanatory variables also show the expected a priori signs suggesting that while Inflation tends to reduce Output, Savings actually stimulates Output. Essentially, the Granger causality test shows that changes in Inflation may not have stimulated nor sufficiently responded to Output growth or Savings in Nigeria over the period of analysis. On the other hand, changes in Savings effectively stimulate Output and Output also critically cause movements in Savings in Nigeria. The VAR results affirmed that Output changes respond more critically to Savings changes than Inflation changes, suggesting that boosting private Savings will effectively stimulate Output in the Nigerian economy. The empirical evidence obtained in the study may have provided some useful hints on the behaviours or cause-effect relationship between Inflation, private Savings and Output (GDP) in the Nigerian economy. Inferences drawn have implications for all stakeholders in the economy and are particularly useful to monetary authorities and regulators, practitioners and market-players

Keywords: inflation, savings, output, Nigeria, vector autoregression (VAR).

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