EconPapers    
Economics at your fingertips  
 

Understanding the dynamics of inflation volatility in Nigeria: A GARCH perspective

Babatunde Omotosho and Sani I. Doguwa

MPRA Paper from University Library of Munich, Germany

Abstract: The estimation of inflation volatility is important to central banks as it guides their policy initiatives for achieving and maintaining price stability. This paper employs three models from the Generalized Autoregressive Conditional Heteroscedasticity (GARCH) family with a view to providing a parsimonious approximation to the dynamics of Nigeria’s inflation volatility between 1996 and 2011. Of the competing models, the asymmetric TGARCH (1,1) provides an appropriate paradigm for explaining the dynamics of headline and core CPI volatilities in Nigeria, while the symmetric GARCH (1,1) was found to be adequate for food CPI. The results are quite revealing. Firstly, model outcomes indicate high persistence parameters for the core and food CPI, implying that the impacts of inflation shocks on their volatilities die away very slowly. However, the impact of inflation shocks on headline volatility die out rather quickly. Secondly, substantial evidence of asymmetric effect was found for both headline and core inflation types while the contrary was confirmed for food inflation. Thirdly, positive inflationary shocks yielded higher volatilities in headline and core inflation than negative innovations, implying the absence of leverage effect in them. The paper finds that periods of high inflation volatility are associated with periods of specific government policy changes, shocks to food prices and lack of coordination between monetary and fiscal policies.

Keywords: Inflation volatility; Conditional heteroscedasticity; GARCH models; Asymmetric effects; Volatility persistence (search for similar items in EconPapers)
JEL-codes: C22 C51 C52 E31 (search for similar items in EconPapers)
Date: 2012-06-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Published in CBN Journal of Applied Statistics 2.3(2012): pp. 51-74

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/96125/4/MPRA_paper_96125.pdf original version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:96125

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().

 
Page updated 2025-03-19
Handle: RePEc:pra:mprapa:96125