Multivariate Time Series Modelling of Select Macroeconomic Indicators in Nigeria

ABSTRACT

This work, in trying to ascertain some of the major macroeconomic factors that would drive the nation’s economic growth, examined the causal relationship among all share index (ASI), nominal exchange rate, foreign direct investment, oil exports and GDP using quarterly data spanning from 1985Q1 to 2014Q4. In a bid to determine if long-run relationships existed among the variables, the Johansen cointegration approach was used after subjecting the series to the Augmented Dickey Fuller (ADF) test. The variables of interest were found to be stationary after first differencing and there was evidence of cointegration. Furthermore, the impulse response and Error Variance Decomposition analyses are used to examine the dynamic relations between stock indices and various macroeconomic variables. Lagrange Multiplier tests are run to ensure that the residuals from the chosen lag length are serially uncorrelated.

TABLE OF CONTENTS

CERTIFICATION i

DEDICATION ii

ACKNOWLEDGMENT iii

ABSTRACT vii

TABLE OF CONTENTS viii

CHAPTER ONE 1

INTRODUCTION 1

1.1 BACKGROUND OF THE STUDY 1

1.2 SCOPE AND LIMITATIONS OF THE STUDY 2

1.3 DEFINITION OF TERMS 3

1.3.1 Exchange Rate: 3

1.3.2 Gross Domestic Product (GDP): 3

1.3.3 All Share Index: 3

1.3.4 Foreign Direct Investment (FDI): 4

1.4 JUSTIFICATION AND SIGNIFICANCE OF THE STUDY 4

1.5 OBJECTIVES 6

CHAPTER TWO 7

LITERATURE REVIEW 7

2.0 PREAMBLE 7

2.1 SHORT REVIEW OF THE MACROECONOMIC VARIABLES 7

2.1.1 FOREIGN DIRECT INVESTMENT 7

2.1.2 STOCK PRICES 9

2.1.3 CRUDE OIL PRICES 10

2.1.4 EXCHANGE RATE: 11

2.1.5 THE INTERPLAY OF THE CHOSEN MACROECONOMIC VARIABLES 13

2.2 LITERATURE REVIEW 15

CHAPTER THREE 20

RESEARCH METHODOLOGY 20

3.0 OVERVIEW 20

3.1 THE THEORETICAL MODEL SPECIFICATION 20

CHAPTER FOUR 30

DATA ANALYSIS AND PRESENTATION OF RESULTS 30

4.0 OVERVIEW 30

4.1 THE DATA 31

4.2 EXPLORATORY ANALYSIS OF THE ORIGINAL DATA 32

4.3 PRELIMINARY ANALYSIS OF THE TRANSFORMED DATA 35

4.4 UNIT ROOT TESTS 37

4.5 CORRELATION COEFFICIENTS 39

4.6 GRANGER CAUSALITY TEST 40

4.7 COINTEGRATION TEST 41

4.8 VECTOR ERROR CORRECTION MODELS (VEC) MODELS 44

CHAPTER FIVE 48

SUMMARY OF FINDINGS, CONCLUSION, AND POLICY RECOMMENDATIONS 48

5.1 SUMMARY OF FINDINGS: 48

5.2 CONCLUSION 49

5.3 RECOMMENDATIONS 50

REFERENCES 51