Is Monetary Policy a Growth Stimulant in Nigeria? A Vector Autoregressive Approach

Transcription

1 MPRA Munch Personal RePEc Archve Is Monear Polc a Growh Smulan n Ngera? A Vecor Auoregressve Approach A. Bolaj Adesoe and Oluaode E. Mau and Anwande AbdulMalq Aanda Daarc Research Consulng, Ngera 0 Onlne a hps://mpra.ub.un-muenchen.de/35844/ MPRA Paper No , posed 0. Januar 0 09:3 UTC

2 IS MONETARY POLICY A GROWTH STIMULANT IN NIGERIA? A VECTOR AUTOREGRESSIVE APPROACH ADESOYE, A. BOLAJI (Ph.D). Deparmen of Economcs, Olabs Onabanjo Unvers, Ago-Iwoe, Ogun sae, Ngera. E-Mal: boladesoe@ahoo.com MAKU, OLUKAYODE E. Deparmen of Economcs, Olabs Onabanjo Unvers, Ago-Iwoe, Ogun sae, Ngera E-Mal: amars73@ahoo.co.u ATANDA, AKINWANDE A. Sraegc R&D Un, Daarc Research Consulng, Ngera. E-Mal: daarcng@gmal.com

3 Is Monear Polc a Growh Smulan n Ngera? A Vecor Auoregressve Approach Adesoe, A. B., Mau, O. A., and Aanda, A. A. Absrac Ths paper crcall examnes he dnamc neracon beween monear polc ools n smulang economc growh, as well as sablzng he econom from exernal shocs n Ngera. The paper consdered e monear me seres varables and real growh of oupu n formulang Vecor Auoregressve (VAR) models whch showed nerdependence neracon beween he perod of 970 and 007. The me seres properes of he seleced varables are examned usng he Augmened Dce-Fuller un roo es and he resuls revealed ha onl growh of real oupu and broad mone suppl are saonar a levels, whle savng, lendng and exchange raes were found saonar a frs dfference. The long-run dnamc neracon was esablshed hrough he Johansen s Trace and Maxmum Egenvalue ess. The par-wse Granger-Causal es conduced showed ha he growh rae of real oupu s no a leadng ndcaor for an monear varables. Oher nnovaon accounng ess were also carred ou le mpulse responses funcon o es for he response of growh n real oupu o nnovaon shoc on monear varables. Also, he forecas error varance decomposon (FEVD) s used o decompose he monear shoc on he growh rae of real oupu n Ngera. Proper polc recommendaons were proffered based on he resuls emanaed from he economerc analses. Ke words: Monear polc, Monear Insrumens, Economc growh, VAR, Impulse shoc response, Varance decomposon

4 Secon. Is Monear Polc a Growh Smulan n Ngera? A Vecor Auoregressve Approach Inroducon Monear polc s he process b whch he cenral ban or monear auhor of a counr conrols he suppl of mone, avalabl of mone, and cos of mone or rae of neres o aan a se of objecves orened owards he growh and sabl of he econom (Wpeda, 00). Monear polc on he oher hand, refers o he specfc acons aen b he Cenral Ban o regulae he value, suppl and cos of mone n he econom wh a vew o achevng Governmen s macroeconomc objecves. For man counres, he objecves of monear polc are explcl saed n he laws esablshng he cenral ban, whle for ohers he are no (CBN, 006). Monear polc s usuall used o aan a se of objecves orened owards he growh and sabl of he econom. The objecves of monear polc ma var from counr o counr bu here are wo man vews. The frs vew calls for monear polc o acheve prce sabl, whle he second vew sees o acheve prce sabl and oher macroeconomc objecves. The macroeconomc objecves nclude full emplomen of scare resources, economc growh, and balance of pamen equlbrum. The Cenral Ban of Ngera, le oher cenral bans n developng counres, acheves he monear polc goal hrough he amoun of mone suppled. Monear polc focuses on he relaonshp beween he raes of neres n an econom, ha s he prce a whch mone can be borrowed, and he oal suppl of mone. Monear polc uses a vare of nsrumens o conrol one or boh of hese, o nfluence oucomes le economc growh, nflaon, exchange raes wh oher currences and unemplomen. Where currenc s under a monopol of ssuance, or where here s a regulaed ssem of ssung currenc hrough bans whch are ed o a cenral ban, he monear auhor has he abl o aler he mone suppl and hus nfluence he neres rae (o acheve polc goals). The begnnng of monear polc as such comes from he lae 9h cenur, where was used o 3

5 manan he gold sandard. A polc s referred o as conraconar f reduces he sze of he mone suppl or rases he neres rae. An expansonar polc ncreases he sze of he mone suppl, or decreases he neres rae. Furhermore, monear polces are descrbed as follows: accommodave, f he neres rae se b he cenral monear auhor s nended o creae economc growh; neural, f s nended neher o creae growh nor comba nflaon; or gh f nended o reduce nflaon. On he bass of he sgnfcance of monear polc ools n sablzng he enre econom, hs sud am o examne and analse he dnamc neracon of monear polc ools n smulang economc growh, as well as sablzng he econom from exernal shocs n Ngera. The paper s organzed as follows. Secon revews prevous leraure on he neracon of monear polc nsrumens wh economc growh, and also he mechansm of smulang he econom amds shocs. Secon 3 provdes an overvew of he Ngera monear ssem from 970 o 007, and Secon 4 descrbes he daa and he mehodolog emploed n he sud. The economerc evdence and mplcaons of he fndngs are dscussed n secon 5 and laer recommends and conclude he sud. Secon..0 Monear Polc Mechansm and Economc Sabl: Emprcal Revew Generall, boh fscal and monear polces see a achevng relave macroeconomc sabl. Over he ear, wo ssues have been subjecs of debae n hs regard. Frs s he superor of each of hese polces n he achevemen of macroeconomc sabl. Whle he Kenesans argued ha fscal polc s more poen han monear polc, he monearss led b Mlon Fredman on he oher hand beleved he oher wa round. Alhough he focus of hs paper s neher o jon n nor exend he debae, based on counres experence and he fac ha monear polc s ofen free from polcal nerference, he sud analses how monear polc can be emploed o sablze economc growh n Ngera. The second ssue concerns he defnon of macroeconomc nsabl. Macroeconomc nsabl can be regarded as a suaon of economc malase, where he econom does no seem o have seled n a sead equlbrum poson (Anlo, 007; An and 4

6 Sun, 008), hereb mang dffcul o mae predcons and good plannng. The defnon of macroeconomc nsabl above suffers from lac of precson. The monear polc focuses precsel on he achevemen of prce sabl, wh respec o boh domesc and exernal prces. Whle nflaon rae s ofen used o rac movemen n domesc prce level, exchange rae s used as polc ool n ensurng exernal sabl and enhancng expor performance (Caballero and Corbo, 989). In addon, exchange rae polc mpacs on he oucome of sablzaon measures and deb managemen sraeges (Busar, Omoe, and Adesoe, 005; Busar and Olawola, 999), especall n developng counres. Thus, hs sud examnes he dnamc neracon beween monear polc ools and economc growh snce a decade afer ndependence o 007 fscal ear. As a means of achevng hs, a smple monear model wh raonal expecaon ha emphaszes he fscal role of he real exchange rae s used. The fscal role of real exchange rae s parcularl relevan o Ngera snce he bul of governmen revenue s derved from foregn exchange earnngs. In he heorecal model, he lns beween hgh nflaon and he jon volal of he real exchange rae and nflaon rae, and some aspecs of governmen s fscal and exchange rae polces are llusraed n a raonal expecaon equlbrum framewor. Consequenl, nflaon rae and he real exchange raes are jonl deermned b he equlbrum of he model. Ths s derved from he sunspo equlbra heor n whch Woodford (986), Shgoa (994) and Drugeon and Wgnolle (996) have demonsraed ha macroeconomc nsabl s relaed o mulple raonal expecaon equlbra. However, several emprcal sudes have been carred ou o nvesgae he dnamc nexus beween monear polc and economc growh among whch are An and Sun (008), Bernane (986), Chee (995), Busar, Omoe and Adesoe (005), Dale and Haldane (993), Faus and Rafq and Mallc (008), Rogers (003), Mallc (00), and Monel (99).Though, hs paper consdered anoher dnamc approach n ascerans he mechansms of neracon beween monear polc and economc growh n Ngera usng dealed economerc shocs accounng echnques. Alhough, he overvew of monear polc managemen n Ngera s revewed n he nex secon n order o gve deal accouns of he several monear reforms eras he counr has undergone over he ears. 5

7 Secon Overvew of Monear Polc Managemen n Ngera Monear polc n he Ngeran conex refers o he acons of he Cenral Ban of Ngera o regulae he mone suppl, so as o acheve he ulmae macroeconomc objecves of governmen. Several facors nfluence he mone suppl, some of whch are whn he conrol of he cenral ban, whle ohers are ousde s conrol. The specfc objecve and he focus of monear polc ma change from me o me, dependng on he level of economc developmen and economc forunes of he counr. The choce of nsrumen o use o acheve wha objecve would depend on hese and oher crcumsances. These are he ssues confronng monear polc maers. Over he ears, he objecves of monear polc have remaned he aanmen of nernal and exernal balance of pamen. However, emphases on echnques/nsrumens o acheve hose objecves have changed over he ears. There have been wo major phases n he pursu of monear polc n Ngera snce he ncepon of he Cenal Ban of Ngera, namel, before and afer 986 Srucural Adjusmen Programme (SAP). The frs phase ( ) placed emphass on drec monear conrols, whle he second phase (986-dae) reles on mare mechansms or mare-based conrols. The era of drec conrols was a remarable perod n monear polc managemen n Ngera, because concded wh several srucural changes n he econom; ncludng he shf n he economc base from agrculure o peroleum, he execuon of he cvl war, he ol boom and crash of he 970s and earl 980s respecvel and he nroducon of he Srucural Adjusmen Programme (Chuu, 009; Garba 996). The economc envronmen ha guded monear polc before 986 was characerzed b he domnance of he ol secor, he expandng role of he publc secor n he econom and over-dependence on he exernal secor. In order o manan prce sabl and a healh balance of pamens poson, monear managemen depended on he use of drec monear nsrumens such as cred celngs, selecve cred conrols, admnsered neres and exchange raes, as well as he prescrpon of cash reserve requremens and specal deposs. Durng hs perod CBN s monear polces focused on fxng 6

8 and conrollng neres raes and exchange raes, selecve secoral cred allocaon, manpulaon of he dscoun rae and nvolvng n moral suason. Revewng hs perod, Omoor (007) observes ha monear polc was neffecve parcularl because he CBN laced nsrumen auonom and goal deermnaon, beng heavl nfluenced b he polcal consderaons conveed hrough he Mnsr of Fnance. The CBN (00) also posed ha he use of mare-based nsrumens was no feasble a ha pon because of he underdeveloped naure of he fnancal mares and he delberae resran on neres raes. The mos popular nsrumen of monear polc was he ssuance of cred raonng gudelnes, whch prmarl se he raes of change for he componens and aggregae commercal ban loans and advances o he prvae secor. The Srucural Adjusmen Programme (SAP) was adoped n Jul, 986 ushered n a new era of monear polc mplemenaon wh mare-frendl echnques n Ngera and agans he crash n he nernaonal ol mare and he resulan deerorang economc condons n he counr. I was desgned o acheve fscal balance and balance of pamens vabl b alerng and resrucurng he producon and consumpon paerns of he econom, elmnang prce dsorons, reducng he heav dependence on crude ol expors and consumer goods mpors, enhancng he non-ol expor base and achevng susanable growh. The capac of he CBN o carr ou monear polc usng mare frendl echnques was leer renforced b he amendmens made o he CBN Ac n 99 whch specfcall graned he CBN full nsrumen and goal auonom. In lne wh he general phlosoph of economc managemen under SAP, monear polc was amed a nducng he emergence of a mare-orened fnancal ssem for effecve moblzaon of fnancal savngs and effcen resource allocaon. The man nsrumen of he mare-based framewor s he open mare operaons. These operaons are conduced wholl on Ngeran Treasur Blls (TBs) and Repurchase Agreemens (REPOs), and are beng complmened wh he use of reserve requremens, he Cash Reserve Rao (CRR) and he Lqud Rao (LR). These se of nsrumens are used o nfluence he quan-based nomnal anchor (monear aggregaes) used for monear programmng. On he oher hand, he Mnmum Redscoun Rae (MRR) s beng used as he prce-based nomnal anchor o nfluence he drecon of he cos of funds n he econom. Ths rae has generall been ep whn he range of 6 and 8 percen snce 986. As a companon o he use of he MRR, he CBN laer 7

9 8 nroduced he Monear Polc Rae (MPR) n 006 whch esablshes an neres rae corrdor of plus or mnus wo percenage pons of he prevalng MPR. Snce 007, hs rae has been held whn he band of 0.5 and 6 percen. Secon Mehodolog Ths paper emploed he b Sm (980, 99) Vecor Auoregressve (VAR) model n analzng he dnamc neracon beween monear polc varables and economc growh n Ngera. Oher ess le Johansen mulvarae conegraon es and Granger-causal es are emploed o deermne he long-run relaonshp (hence, possbl causall relaed.e. mechansm of neracon) beween seleced mone mare varables and economc growh n Ngera. The Augmened Dce-Fuller (ADF) un roo es s used o examne he properes of he me seres varables and o deermne he order of negraon. Furhermore, he mpulse response and error varance decomposon analses are used o examne he dnamc and mechansm of relaon among he varables as a resul of nnovaon shoc. The choce of he lag lengh of he me seres varables are based on he mnmum Aae and Schwarz Informaon Creron. 4. VAR specfed model Vecor Auoregressve model s emploed n analzng he dnamc neracon beween monear polc ools -proxes as Lendng rae (LR), Savngs rae (SR), Exchange rae (EXR) and Growh rae of broad mone suppl (GM)-and economc growh (GRY) n Ngera based on he srucural model specfed below: n m q p u GRY GM EXR SR LR GRY α ψ λ η φ δ n m q p u GRY GM EXR SR LR LR α ψ λ η φ δ n m q p u GRY GM EXR SR LR SR α ψ λ η φ δ

10 p q m n EXR δ 4LR 4SR 4EXR 4GM φ η λ ψ 4GRY α 4 u4 p q m n GM δ 5LR 5SR 5EXR 5GM φ η λ ψ 5GRY α5 u5 Where δ j, φj, ηj, λj, ψ j, and α j are parameers o be esmaed n each ssem of equaons. 4. Johansen Mulvarae Conegraon Tes Ths paper emploed VAR-based conegraon es usng he mehodolog developed n Johansen (997). The Johansen mulvarae conegraon es s o nvesgae he long-run relaonshp of he monear polc varables and growh of real GDP as a ssem of nerdependen equaons. The relaonshps among he varables are based on he followng model: Consder a VAR of order p ε A... Ap p Bx (6) Where s a -vecor of non-saonar I() varables, varables, and ε s a vecor of nnovaons. We can rewre hs VAR as x s a d-vecor of deermnsc p Π Γ Bx ε (7) p Where Π A Ι, Γ p A j j Granger s represenaon heorem assers ha f he coeffcen marx Π has reduced ran r <, hen here exs x r marces α and β each wh ran r such ha Π α β and β s I(0). r s he number of conegrang relaons (he conegrang ran) and each column of β s he conegrang vecor, and α represens he speed of adjusmen parameers. 9

11 0 Johansen developed wo lelhood rao ess for esng he number of conegraon vecors (r): he race and he maxmum Egenvalue es. The race sascs es he null hpohess of r 0 (.e. no conegraon) agans he alernave ha r > 0 (.e. here s one or more conegraon vecor). The maxmum Egenvalue sascs es he null hpohess ha he number of conegrang vecors s r agans he alernave of r conegrang vecors. 4.3 Granger-causal Tes In order o examne wheher here are lead-lag relaonshps beween he monear polc varables and real GDP, we run he Granger-causal es. If he me seres of a varable s nonsaonar, I() and s no conegraed, he varable s convered no I(0) b frs dfferencng and Granger-causal es can be appled as follows: x x x x Y X X,,, ε ψ ρ ϑ, (8) X Y Y,,, ε ψ ρ ϑ, (9) Where X and Y he frs dfference of me seres varable whle he seres s nonsaonar. However, f a varable s non-saonar and conegraon, he Granger-causal es wll be run based on he followng equaons: x x x x x x ECT Y X X,,,, ε ϕ ψ ρ ϑ, (0) ECT X Y Y,,,, ε ϕ ψ ρ ϑ, ()

12 Where ϕ x and ϕ are he parameers of he ECT erm, measurng he error correcon mechansm ha drves he X and Y bac o her long run equlbrum relaonshp and hs ranslae he vecor error-correcon (VEC) model. The null hpohess for he equaon (8) and (0) s H o : ψ x, 0, suggesng ha he lagged em Y do no belong o he regresson. Conversel, he null hpohess for he equaons (9) and () s H : ψ 0, ha s he lagged erm 0, X do no belong o he regresson. These hpoheses are esed usng F-es. 4.4 Innovaon Accounng Innovaon accounng such as he mpulse response funcon and forecas error varance decomposon (FEVD) s used n analzng he nerrelaonshps among he varables chosen n he ssem of equaon () o (5). The mpulse response funcons are responses of all varables n he model o a one un srucural shoc o one varable n he model. The mpulse responses are ploed on he Y-axs wh he perod from he nal shoc on he X-axs. Formall, each φ j () s nerpreed as he me specfc dervaves of he VMA( ) funcon (Enders,995): X j φ j ( ) () l Equaon () measures he change n he h j varable n perod resulng from a un shoc o he h varable n he presen perod. The FEVD measures he proporon of movemen n a sequence arbued o s own shoc o dsngush from movemens arbuable o shocs o anoher varable (Ender, 995). In he FEVD analss, he proporon of Y varance due o Z shoc can be expressed as:

13 σ z [ δ (0) δ ()... δ ( m ) ] σ ( m) (3) One can see ha as m perod ncreases he σ (m) also ncreases. Furher, hs varance can be separaed no wo seres: composed of l andl z. If and z seres. Consequenl, he error varance for can be l approaches un mples ha seres s ndependen of z seres. I can be sad ha s exogenous relave o z. On he oher hand, f l approaches zero (ndcaes hal z approaches un) he z (Ender, 995). s sad o be endogenous wh respec o he Secon 5. Emprcal Resuls and Implcaons 5.. Un Roo Tes Resuls The Augmened Dce-Fuller un roo es resul s presened n able. The ADF resuls reveals ha he me seres varables-growh rae of real GDP and mone suppl exhb conssen rend over he perod. Ths mples ha onl he growh rae of real oupu and mone suppl n levels rejec he null hpohess of non-saonar and he are aen o be negraed of order zero, I(0). The oher ncorporaed me seres varables, lendng rae, savngs rae and exchange rae are found unsable and non-mean reverng. Ths mples ha he accep he null hpohess of non-saonar n levels. Bu accep rejec he null hpohess a frs dfference and hs ndcaes ha he are saonar a frs dfference. These resuls are conssen wh prevous leraure ha found mos monear varables non-saonar and non-mean reverng. For he essence of oher subsequen ess, all he consdered macroeconomc and monear me seres varables are regarded o be saonar a frs dfference and negraed of order one.e. I().

14 Table : Un Roo Tes Resuls: Monear and Macroeconomc Varables Varable ADF Tau Sascs Order of Inegraon Inercep Trend GRY *** (5) -4.30* (6) 0 GM ** () -3.5***() 0 LR * () * () SR -6.8* () * () EXR ** () ** () Noes: *Sgnfcan a % level, **Sgnfcan a 5% level, ***Sgnfcan a 0% level. The value n parenhess s he lag lengh based on he mnmum Aae and Schwarz Informaon Crera. 5. VAR Dagnosc Tes Resuls Pror before he conegraon es, VAR dagnosc ess were carred ou on he esmaed VAR model. In selecng he approprae lag number, he VAR lag order selecon crera es was emploed and lag of 3 s seleced for subsequen es based on he mnmum Fnal Predcon Error (FPE) and Aae nformaon Crera (AIC). In examnng he sabl of he VAR model a lag 3, he AR roos es resul reveals ha he VAR models for he endogenous varables-gry, LR, SR, EXR and GM- are sable because here modulus are less han one and les nsde he un crcle. Also, he VAR Lag Excluson Wald es resul ndcaes ha all he endogenous varables are jonl sgnfcan a lag Johansen Mulvarae Conegraon Tes Resuls The Johansen s Trace and Maxmum Egenvalue ess resul s shown n able 3. Accordng o Johansen (997), f resrcons are mposed on he deermnsc componens of he johansen s mulvarae model, fve possble models exs. In hs sud, he hrd (nercep onl) and fourh (nercep and rend) models resrcon opons are emploed as s programmed n 3

15 E-Vews 5.., snce Johansen (997) posed ha he oher models resrcon opons ha are oo resrcve or leas resrcve are unlel o occur n pracce. A McKnnon-Haug-Mchels 5% sgnfcance level of he Trace and Max Egenvalue ess sugges ha he ncorporaed varables are conegraed wh r and r 0 respecvel for hrd varan model. Whle for he fourh model he varables are conegraed wh r 3 and r 0 a 5% sgnfcance level of he Trace and Max Egenvalue ess respecvel. Emprcall, s common for he esmaed es sascs o show dfferen resul. However, n he Max Egenvalue es, boh he null and alernave hpoheses are more specfc. Therefore, he ran wll be dependen on he Max Egenvalue es resuls, whch mples ha here a mos none conegraon vecor (r 0) n model 3 and 4. Table 3: Unresrced Conegraon Ran Tes (Max. Egen value and Trace Sascs) R Max. Egen Sasc Trace Sasc Max. Egen Sasc Trace Sasc R * ( ) * (69.889) * (38.330) * ( ) R (7.5843) 54.63* (47.856) (3.83) * (63.876) R (.36) 3.5* (9.797) (5.83) * (4.953) R 3.4 (4.646).7979 (5.4947) (9.3870) * (5.87) R (3.8447) (3.8447).0656 (.580).0656 (.580) *Denoes rejecon of he hpohess a he 0.05 level. The value n parenhess represens he crcal value a 0.05 level. Source: Auhors Compuaon (0) 5.4 Par-wse Granger-Causal Tes Resuls The par-wse Granger-Causal es s conduced o examne he lead-lag relaonshp among he monear and macroeconomc varables ncorporaed n hs sud. The resuls are repored n able 4. None of he monear varables-lr, SR, EXR, and GM-are found o Granger cause growh rae of real oupu n pars and jonl. The resul ndcaes ha savng rae, exchange rae and growh rae of mone suppl Granger cause changes n lendng rae par wse 4

16 and jonl. Growh rae of mone suppl s he onl monear varables ha cause savngs rae par wse and oher varables are found o sgnfcanl Granger cause savngs rae. The repored resuls also reveal ha savngs rae Granger cause exchange rae and whle b-causal exs beween lendng rae and exchange rae. All ncorporae varables are found o sgnfcanl cause changes n Exchange rae. Whle, none varables Granger cause growh rae of mone suppl par wse and jonl. Therefore, our emprcal fndngs sugges ha growh rae of real oupu s no a leadng ndcor for an monear varables ncorporaed n hs sud. Table 4: Par-wse Granger-Causal Tes VARIABLES GRY LR SR EXR GM ALL GRY LR SR EXR GM Source: Auhors Compuaon (0) 5.5 Impulse Response Analss The nnovaon accounng es resul for mpulse response funcon of monear varables on he real economc growh s presened n able 5 and he graphcal resul s shown n fgure. The mpac of a shoc o he growh rae of real oupu experenced a mxed posve and negave effec. Bu he shoc onl exer negave effec on real oupu growh a 3 rd and 7 h ear me horzon and hese were found sgnfcan. The effec of a shoc o each of he seleced monear varables o real growh rae of GDP exer a mx of posve and negave effec hroughou he 0 ears me horzon of he analss. Randoml, n erms of he hghes magnude growh rae of mone suppl (GM), lendng rae (LR), savng rae (SR) and Exchange rae (EXR) were found o exer posve effec 5

17 on real growh of GDP as a resul of a un shoc n he s, nd, s and 6 h perod respecvel. On he oher effec, savngs rae (SR), Exchange rae (EXR), growh of mone suppl (GM) and lendng rae (LR) were found o nac negave effec on he growh of real oupu as a resul nnovaon shoc mechansms n he 4 h, s, 4 h and s perod respecvel. The effec of a shoc o exchange rae o real oupu growh reveals a sgnfcan negave effec response all hrough he frs 4 ears perod srenghen ll he 4 h perod horzon. The negave effec ransed o posve effec n he 5 h perod, response of a shoc o exchange rae o real oupu growh from he 6 h o 0 h ear perod were found negave and hs sgnfcanl srenghen alhough he horzon. Table 5: Response of GRY o a Innovaon Shoc on Monear Varables Perod GRY LR SR EXR GM Source: Auhors Compuaon (0) 6

18 Response o Choles One S.D. Innovaons ± S.E. 40 Response of GRY o GRY 40 Response of GRY o LR 40 Response of GRY o SR Response of GRY o EXR Response of GRY o GM Fg.. Impulse Response of GRY o Shocs n Monear Varables 7

19 5.6 Forecas Error Varance Decomposon Analss The resuls of forecas error varance decomposon (FEVD) are presened n able 5. The es resuls revealed ha FEVD for he real growh rae of GDP could be arbued o growh rae of mone suppl (GM), savngs rae (SR) and lendng rae (LR), afer 0 ears, whch accoun for 0.3% and.6% respecvel. Even, afer 5 ears he nnovaon of growh rae of real oupu s sll more arbuable o growh rae of mone suppl (GM), savngs rae (SR) and lendng rae (LR), whch sood a 9.37%,.33% and.30% respecvel. The resul neresngl revealed ha he FEVD for real growh rae of GDP s sll more arbuable o self compared o an of he monear varables seleced boh n he 5 h and 0 h ear. Consderng he frs hree quarers of he me frame for he analss of FEVD for real growh rae of GDP, he resul revealed ha he growh rae of mone suppl (GM), savngs rae (SR) and lendng rae (LR) are he hree mos mporan monear varables ha accoun for he nnovaon n real oupu growh n Ngera. Alhough, Exchange rae (EXR) was found less sgnfcan n explanng he forecas error varance. However, FEVD resuls ndcaed ha here s sgnfcan evdence o show ha he varance n he real growh rae of GDP can be accouned for b nnovaon n self over he 0 ears perod, compare o an of he nex mporan facors aen as he growh rae of mone suppl (GM), savngs rae (SR) and lendng rae (LR). Table 6: Forecas Error Varance Decomposon (FEVD) of GRY Perod S.Error GRY LR SR EXR GM

20 Source: Auhors Compuaon (0) 5.7 Polc Implcaons of he Fndngs and Recommendaon Ths sud has crcall evaluaes he dnamc neracon beween monear polc and economc growh beween 970 and 007. The polc mplcaons of he fndngs n hs sud have shown ha here ma exss conflcng polc opons n achevng an of he macroeconomc objecves amds oher objecves. Ou of he me seres varables emploed, lendng rae, savngs rae and exchange rae were found unsable and non-mean reverng and whle he growh rae of real oupu and mone suppl are saonar a level usng he Augmened Dce-Fuller un roo es. The Johansen Conegraon es resuls ndcae ha a McKnnon-Haug-Mchels 5% sgnfcance level of he Trace and Max Egenvalue ess sugges ha he ncorporaed varables are conegraed for hrd and fourh varan models of he es. Ths mples ha here exs a long-run relaonshp beween monear varables ools and economc growh n Ngera. The par-wse Granger-Causal es revealed ha none of he monear varables-lr, SR, EXR, and GM-are found o Granger cause growh rae of real oupu n pars and jonl. Therefore, our emprcal fndngs sugges ha growh rae of real oupu s no a leadng ndcor for an monear varables ncorporaed n hs sud. Fnall usng nnovaon accounng, he Impulse Response Funcon (IRF) resuls ndcae ha he mpac of shoc o Exchange rae (EXR), Savng rae (SR), Lendng rae (LR) and growh rae of mone suppl (GM) on economc growh (GRY) n hs research reveal a mx posve and negave effec hroughou he sampled perod. Ths was found conssen wh oher earler emprcal sudes. The forecas error varance decomposon (FEVD) es resuls ndcae ha he varance n he real growh rae of GDP can sgnfcanl be accouned for b nnovaon n self over he 0 ears perod, compare o an of he nex mporan facors aen as he growh rae of mone suppl (GM), savngs rae (SR), 9

21 lendng rae (LR) and exchange rae (EXR). Ths mples ha here s ARCH effec assocaed wh varance of growh rae of GDP as a resul of shoc o s prevous growh rae. In general, hs paper proffers polc recommendaons emanang from he emprcal fndngs beween he analses perod of 970 and 007. The level of economc growh should no be used as a baromeer n deermnng major monear polc raes because he resul of he par-wse Granger Causal es revealed ha growh rae of real oupu s no a leadng ndcor for an of he monear varables consdered n our sud. In oher form, he prevous performance of major monear polc nsrumens should be emploed as ndcaors of predcng he growh rae of economc oupu n he curren perod because of he long-run mechansm relaonshp exsng among hem. Snce no economes of he world ncludng Ngera can easl aver economc shocs, herefore he monear polc auhores should regulae he level of major monear raes le exchange rae and lendng rae whch are hghl shoc prone owards economc growh n Ngera. Thus, fuure sudes can exend hs sud o nclude oher monear ndcaors, fscal polc varables and examne he nheren shor-run dnamc relaonshp hrough Vecor Error Correcon (VEC) Model. 0

22 References Anlo, A. E. (007). The dnamcs of mone, oupu and prces n Ngera, Paper Presened a he Cenral Ban of Ngera 007 Execuve Polc Semnar. An, L. and Sun, W. (008), Monear Polc, Foregn Exchange Inervenon and The Exchange Rae: The Case of Japan Inernaonal Research Journal of Fnance and Economcs. Bernane, Ben S., (986). "Alernave explanaons of he mone-ncome correlaon," Carnege-Rocheser Conference Seres on Publc Polc, Elsever, vol. 5(), pages 49-99, Januar Busar, D., Omoe P., and B. Adesoe (005): Monear Polc and Macroeconomc Sablzaon Under Alernave Exchange Rae Regme: evdence from Ngera. Unon Dges, an Economc and Busness Publcaon of Unon Ban of Ngera Plc. Vol. 9. No 3 & 4, December. hp:// Busar, T. D. and O. W. Olawola (999) Sablzaon Polc n Ngera Under Alernave Exchange Rae Regmes: A Posulaed Emprcal Macro-Model Approach. Economc and Fnancal Revew (CBN), Vo. 37 No.: -35: March. Caballero, R. and Corbo, C. (989), How does unceran abou he real exchange rae affec expors? PPR Worng Paper, No.. Washngon, D.C: The World Ban. CBN (996), Annual Repors and Saemen of Accouns, Cenral Ban of Ngera. Chee, L.N. (995), Exchange Rae Deprecaon and Balance of Pamens Adjusmen: The Ngeran Case. NISER Indvdual Research Projec Repor, NISER, Ibadan Chuu A. C. (009). Measurng he Effecs of Monear Polc Innovaons n Ngera: A Srucural Vecor Auoregressve (SVAR) Approach. Afrcan Journal of Accounng, Economcs, Fnance and Banng Research, Volume 5, No. 5. Dale S. and Haldane A., (993). "Ineres raes and he channels of monear ransmsson: some secoral esmaes," Ban of England worng papers 88. Rereved from

23 Faus, J. and Rogers, J. H. (003), Monear Polc role n Exchange Rae Behavour Journal of Monear Economcs 50, Garba (996), Wha Can We Learn From Ngera s Experence Wh he World Ban s Adjusmen Wh Growh Programme? In - Beond Adjusmen- Managemen of he Ngeran Econom (Seleced Papers of he 996 Annual Conference of The Ngeran Economc Soce). Johansen, S. (997), Lelhood-Based Inerference n Conegraed Vecor Auoregressve Mallc, S. (00). Macroeconomc Shocs, Monear Polc and Implc exchange rae argeng n Inda. Models, Oxford, Oxford Unvers Press. Monel, P. (99), The Transmsson Mechansm for Monear Polc n Developng Counres. IMF Saff Papers Vol.38 () march pp Omoor, D. G. (007), Monear polc and economc growh: Theorecal and concepual ssues, CBN Economc and Fnancal Revew 45 (4) Oejde, T.A (00), Monear Polc and s Effecs on he Ngeran Econom, Ngeran Economc Soce Proceedngs of a One-da Semnar on Monear Polc and Exchange rae Sabl, Federal Palace Hoel, Lagos. Rafq, M.S. and S.K. Mallc (008), The effec of monear polc on oupu n EMU3: A sgn resrcon approach, Journal of Macroeconomcs (30) Sms, C. (980), Macroeconomcs and Real, Economerca Vol. 48 (Januar):48. Sms, C. (99), Are Forecasng Models Usable for Polc Analss? Quarerl Revew, Federal Reserve Ban of Mnneapols:-6. Wpeda (00): Monear Polc. hp:// org/w/ Monear _polc.hml

24 Appendx The Tme Seres Graphs of he Monear and Macroeconomc Varables n Ngera beween 970 and LR GRY LR SR EXR GM SR GRY 3

25 EXR GM 4