STOCHASTIC MODELLING OF NIGERIA INFLATION RATE

Abstract

Inflation rate is an essential economic variable. It gives a picture of the performance of an economy. Nigeria as a developing country needs to monitor the inflation rate with the other economic factors in order to ensure that the economy does not go out of control. The impact of the Corona Virus Disease 2019 (COVID-19) on the developing countries can be checked through such monitoring. This study examined the long run prediction of the dynamics of the Nigeria inflation rate using the Markov Modeling approach. The Nigeria inflationary system was considered as a three state Markov process and the system’s distribution was determined at the steady state. Result shows that the long run probability of increased inflation rate is high. The study recommends the use of Markov approach for modelling the behaviour of dynamic systems and that reversion mechanism be put in place especially by the governments to mitigate inflation rate in Nigeria.