The Impact of Inflation on Financial Sector Development: Evidence from Nigeria

Abstract

This paper examines the Impact of inflation on financial sector development in Nigeria using quarterly data from 2002-2017. Financial sector development is proxied using money supply as a share of GDP (M2/GDP).The Auto-Regressive Distributive lag (ARDL) model is employed to carry out the estimation given the weakness of the Engle-Granger residual-based cointegration technique to test the long-run and short-run effects of the impacts of inflation on financial sector development. The results of the estimation reveal that there is a positive and statistically significant relationship between inflation and financial sector development in Nigeria. There is need to test for threshold effects of inflation on financial development in Nigeria.