The relationship between fiscal deficits and inflation has provoked considerable interest in the macroeconomics literature. While the theory postulates that fiscal deficits lead to inflation, empirical research has been less conclusive about the relationship. This paper reexamines the issue in the context of a developing country, Nigeria, using data over 1970-2006, a period of persistent inflationary trends. We adopted a modeling approach that incorporates cointegration techniques and

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... analysis. The results reveal a positive but insignificant relationship between inflation and fiscal deficits in Nigeria. We did not also find any strong evidence linking past levels of fiscal deficits with inflation in Nigeria during the period. Rather, we report a positive long run relationship between money supply and inflation in the Nigerian economy, suggesting that money supply is procyclical and tends to grow at a faster rate than inflation rate. the three means of financing may lead to appreciation of real and nominal exchange rate in the case of flexible exchange rate and capital mobility. The specification of the model mirrors the works of