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Nexus Between Asset Class Volatility and the Output Gap in Nigeria: A Bayesian Var Approach

Author

Listed:
  • richard umeokwobi

    (Central Bank of Nigeria, Nigeria)

  • Abayomi Awujola

    (Bingham University, Nasarawa State, Nigeria)

  • Emeka Nkoro

    (University of Port-Harcourt, Nigeria)

  • Marvelous Aigbedion

    (Bingham University, Nasarawa State, Nigeria)

Abstract

Excessive volatility in financial markets can disrupt economic activity, affect investor and consumer confidence, and potentially lead to financial crises in an economy. Due to this backdrop, this study examined the link between asset class volatility and the output gap in Nigeria. The asset classes were categorized into stock, crude, gold, and bitcoin. The study adopted the GARCH and Bayesian VAR approach and found that all share index has an initial negative impulse with output gap while other asset classes have a positive impulse on output gap. The outcome of this study revealed to both policymakers and economists the potential risks and vulnerabilities of asset class volatility in the economy. Based on this result, recommendations are made amongst which is the strengthening of the Nigerian stock market to help with the inflationary pressures this is because the Nigerian stock market hurt the output gap also, the government should prioritize investing in crude, gold, and bitcoin to push the actual output to full capacity, which brings about employment.

Suggested Citation

  • richard umeokwobi & Abayomi Awujola & Emeka Nkoro & Marvelous Aigbedion, 2024. "Nexus Between Asset Class Volatility and the Output Gap in Nigeria: A Bayesian Var Approach," Financial Economics Letters, Anser Press, vol. 3(1), pages 52-67, January.
    • Handle: RePEc:bba:j00007:v:3:y:2024:i:1:p:52-67:d:294
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    References listed on IDEAS

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    2. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
    3. Ms. Paula De Masi, 1997. "IMF Estimates of Potential Output: Theory and Practice," IMF Working Papers 1997/177, International Monetary Fund.
    4. Babatunde Akinmade & Festus Fatai Adedoyin & Festus Victor Bekun, 2020. "The impact of stock market manipulation on Nigeria’s economic performance," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 9(1), pages 1-28, December.
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