An Empirical Investigation of The Fisher Effect in Nigeria: A Co-Integration and Error Correction Approach

Abstract

The paper examines the existence of fisher effect for Nigeria, by regressing interest rates on inflation rate during the period 1970-2007. The cointegration and error correction regression results indicate that increases in inflation rate lead to increase in nominal interest rates by less than one point, thus confirming the existence of a long run partial fisher effect in Nigeria. The author recommends that the monetary authorities should employ strategies that will prevent inflation from rising if nominal interest rates are to be kept at low levels. In addition, government should give more subsidies, and increase its investment in infrastructure (power, transports, etc.,) in order to promote and raise production. These measures among other things would go a long way in curbing inflation rate and interest rates.