Analysis of The Effect of Persistent Rate Hikes on Price Stability in Nigeria from 1990-2023: An Ardl Approach

The study evaluates the consequence of persistent hikes in interest rate on price stability in Nigeria. It uses data on major economic parameters such as inflation, real effective exchange rate, GDP growth rate, real interest rate, currency in circulation, lending rate from 1990 to 2023. Inflation is the endogenous variable. Independent indicators are the growth rate of GDP, real interest rate, real effective exchange rate, currency in circulation, and lending rate. The parameters are stationary at levels and first difference which warranted the use of Autoregressive Distributed Lag model (ARDL) bounds test, and Error Correction Model to evaluate the variables. In the short and long run. VAR lag order selection criteria were used to determine the lag length for each variable. Findings show that the growth rate of GDP and real interest rate have a negative effect on inflation in the long run. Further, lending rate, and real interest rate, currency in circulation, real effective exchange rate, have positive impact on inflation in the long run. In terms of granger causality, the research also shows the existence of bi-directional movement from lending rate to inflation and vice versa. There is also the existence of unidirectional movement from inflation to lending rate, real effective exchange rate, and real interest rate. There is also a unidirectional movement from currency in circulation to lending rate. The findings of the study will help the financial and fiscal authorities in Nigeria to know the implications of persistent interest rate hikes on price stability.