Inflation: How Much Is Too Much For Economic Growth in Nigeria

This study follows the methodology of Khan and Sendhadji (2001) to examine the existence of threshold effects in the inflation-growth relationship, using Nigeria data for the period 1970 to 2003. The results suggest the existence of inflation threshold level of 6 percent. Below this level, there exists significantly positive relationship between inflation and economic growth, while above this threshold level, inflation retards growth performance. Sensitivity analyses conducted confirmed the robustness of these results. This finding suggests that bringing inflation down to single digits should be the goal of macroeconomic management in Nigeria, while the optimal inflation target for policy in Nigeria is 6 percent.