Inflation; Credit Rationing; Nigeria; ARDL; Toda and Yamamoto

This study examines the dynamic interaction between inflation and credit rationing in the case of Nigeria for the period 1970-2011. It uses time-series data obtained from the Central Bank of Nigeria (CBN) Statistical Bulletin in its analysis of examining the long run and causal relationship between inflation and credit rationing. In doing so, it employs the Autoregressive Distributed Lag (ARDL) bounds testing procedure suggested by Pesaran et al. (2001) and the Granger causality test suggested by Toda and Yamamoto (1995). Empirical findings reveal that although there is an evidence of a long run relationship between credit rationing and inflation, no pattern of such long run relationship is established. The results reveal further that there is no evidence of causality in either direction between inflation and credit rationing in Nigeria. Consequently, the study recommends, among other policy implications, that financial reforms may be pursued without adversely affecting the purchasing power of the citizenry.