Abstract

Author:
Jibrin Ndaliman Umar, Yahaya Haruna Umar

Doi: 10.26480/jtwe.01.2024.36.45

This is an open access article distributed under the Creative Commons Attribution License CC BY 4.0, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited

Stable inflation is one of the major macroeconomic objectives of any nation. Thus, the need for policymakers, development analysts, and academic researchers to continue to devise means for forecasting inflation. Several efforts have been made in this direction. This study used structural vector autoregressive approach to model the determinants of inflation in Nigeria from 1995M1 to 2023M6 and forecast its future path for twelve period ahead horizon (i.e., July 2023 to June 2024). The findings show that inflation is persistent in Nigeria, with evidence of a strong pass-through from exchange rate to inflation. There is also the interplay of monetary and structuralist views of inflation as well as the fiscal theory of the price level. The best approach to forecasting inflation in Nigeria, using structural vector autoregressive approach is discovered to be the static model, considering that it traces the actual values perfectly well and also returns the lowest Root Mean Square Errors for both in-sample and out of sample forecasts. The study recommends that, to forecast the future part of inflation for Nigeria using structural vector autoregressive approach, there is the need to adopt the static model, include all drivers of inflation, and capture all global shocks that occurred during the period.