Budget deficit and selected macroeconomic variables in Nigeria: A toda-yamamoto causality approach

This study examined the relationship between budget deficit and macroeconomic variables in Nigeria for the quarterly period of 1970 -2011. The study employed the augmented Granger causality test approach developed by Toda and Yamamoto (1995). The result showed a strong unidirectional causality from budget deficit to macroeconomic variables in Nigeria. The result supported the Keynesian proposition. Also the evidence from Johansen co-integration result indicated that there is a positive long run relationship between budget deficit and macroeconomic variables. In view of the findings, appropriate monetary- fiscal policies mix should be pursued. These include among other things, the right combination of appropriate internal- external debt ratio, the ways and means and bond to finance budget deficit in the country with close monitoring of rate of inflation.