Macroeconomic Interactions in Nigeria: VECM-Based Analysis (2001-2023)
Article Sidebar
Page Numbers:
251-262
Digital Object Identifier:
10.58578/ijhess.v4i2.8769
Viewed: 72 times
Downloaded: 49 times
LYAS Publisher cordially invites qualified professionals to serve as Editors or Reviewers. Your expertise will make an important contribution to maintaining and strengthening the academic quality of our publications. Interested applicants are kindly requested to complete the application form at the following link: Editors & Reviewers
Please feel free to contact us if you need any further information about the submission process or if you have any additional questions.
Authors:
Olaniyan Joseph Olawale1*, Adetunkasi Taiwo Flora2, Aladesuyi Alademomi3 
Copyright :
Authors retain copyright and grant the journal right of first publication.
Main Article Content
Abstract
Understanding the dynamic relationships among major macroeconomic variables is essential for evaluating economic stability and informing policy design in developing economies such as Nigeria. This study aimed to investigate the interrelationships among Gross Domestic Product (GDP), inflation, broad money supply (M2), interest rate, exchange rate, and unemployment in Nigeria over the period 2001–2023. Annual data were obtained from the Central Bank of Nigeria, World Bank, International Monetary Fund, and CEIC databases and analyzed using a Vector Error Correction Model (VECM) implemented in Python’s statsmodels framework to capture both short-run adjustments and long-run equilibrium dynamics. The findings reveal the presence of three stable long-run cointegrating relationships among the variables. Inflation was found to respond strongly to changes in GDP, interest rates, and exchange-rate movements, whereas the effects of money supply and unemployment were relatively weaker. The results further indicate that economic growth contributes to modest reductions in unemployment, while persistent inflationary pressures and volatile interest rates tend to worsen labor-market outcomes. Exchange-rate depreciation also emerged as a major source of macroeconomic instability. Diagnostic tests suggest that the estimated model is broadly robust, although mild indications of serial correlation and multicollinearity remain. The study concludes that Nigeria’s macroeconomic environment is shaped by deep structural weaknesses that require stronger policy coordination, improved exchange-rate management, and sustained structural reforms to enhance price stability and employment outcomes. These findings contribute empirical evidence on long-run and short-run macroeconomic interactions in Nigeria and provide policy-relevant insights for strengthening economic management.
Downloads
Article Details
Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License that allows others to share the work with an acknowledgement of the work's authorship and initial publication in this journal.
References
Akinlo, A. E., & Akinwale, S. O. (2022). Macroeconomic shocks and inflation persistence in Nigeria. Journal of African Trade, 9(1–2), 45–61.
Akinlo, A. E., & Lawal, Q. A. (2021). Exchange rate pass-through and inflation dynamics in Nigeria. African Development Review, 33(3), 411–425. https://doi.org/10.1111/1467-8268.12530
Akinwale, S. O., & Grobler, W. (2019). Inflation, unemployment, and economic growth in Nigeria. The Journal of Developing Areas, 53(4), 141–154. https://doi.org/10.1353/jda.2019.0059
Alege, P. O., Adediran, O. S., & Ogundipe, A. A. (2020). Monetary policy shocks and macroeconomic performance in Nigeria. Journal of African Business, 21(2), 203–222.
Blanchard, O. (2022). Macroeconomics (8th ed.). Pearson Education.
Bonga-Bonga, L., & Kabundi, A. (2020). Exchange rate pass-through and inflation in emerging economies. Economic Modelling, 89, 118–130. https://doi.org/10.1016/j.econmod.2019.10.020
Central Bank of Nigeria. (2023). Annual economic report 2023.
Chuku, C. A., Effiong, E. L., & Sam, N. R. (2021). Inflation dynamics and monetary policy credibility in Nigeria. Journal of African Economies, 30(3), 252–278.
Clarida, R., Galí, J., & Gertler, M. (1999). The science of monetary policy: A New Keynesian perspective. Journal of Economic Literature, 37(4), 1661–1707. https://doi.org/10.1257/jel.37.4.1661
Dickey, D. A., & Fuller, W. A. (1979). Distribution of the estimators for autoregressive time series with a unit root. Journal of the American Statistical Association, 74(366), 427–431. https://doi.org/10.1080/01621459.1979.10482531
Enders, W. (2015). Applied econometric time series (4th ed.). Wiley.
Engle, R. F., & Granger, C. W. J. (1987). Co-integration and error correction: Representation, estimation, and testing. Econometrica, 55(2), 251–276. https://doi.org/10.2307/1913236
Galí, J. (2018). Monetary policy, inflation, and the business cycle (2nd ed.). Princeton University Press.
Gujarati, D. N., & Porter, D. C. (2009). Basic econometrics (5th ed.). McGraw-Hill.
International Monetary Fund. (2022). World economic outlook: Countering the cost-of-living crisis. https://www.imf.org/-/media/files/publications/weo/2022/october/english/text.pdf
International Monetary Fund. (2023). Nigeria: 2022 Article IV consultation—Press release; staff report; and statement by the Executive Director for Nigeria. https://www.imf.org/en/publications/cr/issues/2023/02/16/nigeria-2022-article-iv-consultation-press-release-staff-report-and-statement-by-the-529842
Johansen, S. (1991). Estimation and hypothesis testing of cointegration vectors in Gaussian vector autoregressive models. Econometrica, 59(6), 1551–1580. https://doi.org/10.2307/2938278
Johansen, S., & Juselius, K. (1990). Maximum likelihood estimation and inference on cointegration with applications to the demand for money. Oxford Bulletin of Economics and Statistics, 52(2), 169–210. https://doi.org/10.1111/j.1468-0084.1990.mp52002003.x
Lütkepohl, H. (2005). New introduction to multiple time series analysis. Springer.
Olayungbo, D. O., & Akinbobola, T. O. (2019). Exchange rate volatility and inflation in sub-Saharan Africa. Journal of Economic Studies, 46(5), 1–18.
Olubusoye, O. E., Bankole, A. S., & Adenikinju, A. F. (2017). Inflation and economic growth in Nigeria: A threshold analysis. South African Journal of Economics, 85(4), 491–514. https://doi.org/10.1111/saje.12160
Phillips, A. W. (1958). The relation between unemployment and the rate of change of money-wage rates in the United Kingdom, 1861–1957. Economica, 25(100), 283–299. https://doi.org/10.1111/j.1468-0335.1958.tb00003.x
Samuelson, P. A., & Solow, R. M. (1960). Analytical aspects of anti-inflation policy. American Economic Review, 50(2), 177–194.
Seabold, S., & Perktold, J. (2010). Statsmodels: Econometric and statistical modeling with Python. In Proceedings of the 9th Python in Science Conference (pp. 92–96). https://doi.org/10.25080/Majora-92bf1922-011
World Bank. (2023). Nigeria economic update: Navigating economic reforms.
World Bank. (2024). World development indicators. https://databank.worldbank.org/source/world-development-indicators