Published
2016-12-05
Issue
Section
Articles
How to Cite
The Effects of Inflation and its Risk on Interest Rate: An Empirical Evidence from Nigeria
Amaefula C. G
Department of Mathematical, Computer and Physical Science, Faculty of Science, Federal University Otuoke, Yenagoa, Bayelsa State, Nigeria
DOI: https://doi.org/10.20448/journal.502/2016.3.2/502.2.74.78
Keywords: ARCH (1), GARCH (1, 1), Multiple regression, SIC, Inflation and interest rate.
Abstract
The paper examines the effects of inflation and its risk on interest rate in Nigeria. The data sets cover the period of 1995:M1 to 2014:M12. ARCH (1) and GARCH (1, 1) were used to measure inflation risk and the result indicates that GARCH(1, 1) measures inflation risk better than ARCH(1) model based on Schwarz Information Criterion (SIC), and adopting multiple regression method, the result reveals that inflation and inflation risk exact negative and positive impacts on interest rate respectively, but none is significant. This result implies that the direction of this interest rate by monetary policy rate (MPR) is not proactive enough to curb the rising inflationary pressure in Nigeria. Hence, there is a need for more proactive monetary policy rate that can cut back the rising inflationary pressure.