AN EMPIRICAL ANALYSIS OF THE SACRIFICE RATIO IN NIGERIA

 AN EMPIRICAL ANALYSIS OF THE SACRIFICE RATIO IN NIGERIA

ABSTRACT

The study empirically analyzed the sacrifice ratio in Nigeria for the period 1970-2013, using the Instrumental Variables Generalized Method of Moments (IV-GMM) technique. The results revealed that inflation inertia has a significant negative impact on the actual rate of inflation in Nigeria. It was also revealed that the percentage of a year’s real GDP that must be forgone to reduce inflation by 1 percentage point in Nigeria is 5.1. In 1982, 53.55 percent of the GDP was sacrificed. Equivalently, a sacrifice of 26.58 percentage points of cyclical unemployment was made in the same year; while the highest percentage of GDP was sacrificed in 1990 and the lowest in 2007. Based on the findings, the study recommends that the plan to reduce inflation rate, and the rate of reduction should be publicly announced. This will go a long way to reducing personal expectations formed by workers and firms that determine the wages and prices.