Analysis of the Dynamics of Inflation Volatility in Nigeria: An Application of TGARCH (1, 1) Modeling.

This study examines the dynamics of inflation volatility in Nigeria using monthly macroeconomic data from 2003M1 to 2023M12 within a multivariate regression framework. Particular attention is given to the asymmetric effects of shocks and a structural break identified in March 2022. The study employs the Threshold generalized autoregressive conditional heteroscedasticity (TGARCH) model selected over GARCH and EGARCH based on some selected information criteria and its ability to capture asymmetric volatility and structural breaks in the inflation series. The findings indicate that changes in global crude oil price, money supply and exchange rate from the previous month have a positive and statistically significant effect on current inflation, while imports exerts a negative significant effect. The study also confirms the existence of asymmetric volatility in inflation rates in Nigeria, indicating that negative shocks such as macroeconomic instability tend to have larger effect on inflation than positive shocks. Based on these findings and the scenario simulation analysis, the study recommends that the government implement policies aimed at improving exchange rate and money supply management as well as measures to cushion the economy against inflationary pressures arising from global oil price fluctuations. Additionally, policymakers should consider asymmetric responses of inflation to shocks when designing inflation targeting frameworks.