Together Forever but Better Apart: A Revisit of the Inflation–Growth Nexus with Moderators

Inflation is an economic phenomenon that affects the growth of many countries around the world, especially African countries. Several studies have endeavored to determine the direction of its effect in developing countries, albeit with inconclusive results. Moreover, there is a paucity of studies on the moderating roles fiscal policy and monetary policy play in this relationship. This study examines the effect of inflation on Nigerian economic growth and the moderating roles of fiscal and monetary policies from 1986 to 2023. By employing the ARDL bound test, it was discovered that a long-run relationship exists, with a significant negative relationship in the short run. Also, the intervening role of government expenditure significantly worsens the effect, while the money supply insignificantly weakens the influence of inflation on economic growth in the short run. Notably, the moderating role of a coordinated fiscal and monetary policy has a favorable significant effect on the inflation–growth nexus. This study concludes that while inflation poses a serious threat to the Nigerian economy, the intervening roles of coordinated government expenditure and the money supply are significant to reduce the adverse effect. There is a pressing need for monetary authorities to utilize a coordinated fiscal and monetary policy to reduce the inflation rate to single-digit levels.