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Econometrics Analysis of Inflation: Using Method of Principal Component Analysis.

Semiu Ayinla Alayande


Nigeria witnessed a sharp increase in inflation from 6.9% in 2000 to about 17.8% in 2005. This was attributed to the government budget deficit over the years. The inflation rate declined to 5.4% in 2007 due to the implementation of unassailable monetary and fiscal policies. The inflation rate moderated substantially from 11.6% in 2008 to 9.7% in 2015 due to increased agricultural output and sound macroeconomic policies. The economy could not sustain the single-digit; by 2017 it increases to 13.4%. Principal components analysis (PCA) is depicted on the highly reduced intercorrelations between the six extracted variables. These factors can be used to construct a macro-econometrics model for the determination of price level in Nigeria.


Principal Component, Inflation, Model specification.

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