Forecasting Inflation in Developing Economies: The Case of Nigeria, 1986-1998
In this article, we have sought to establish whether monetary aggregates have useful information for forecasting inflation, other than that provided by inflation itself. We have approached the problem in two ways. First, we conducted forecasting experiments, using Mean Absolute Percentage Errors (MAPEs). We then evaluated whether each monetary variable improved the forecasts of a simple AR (1) model of inflation. From the study, we found that the MAPEs for all the variables were less than that of the benchmark AR (1) model. The forecasting experiments showed that, over the whole sample period, most of the variables examined served as important information variables for price movements. We found that the Treasury bill rate, domestic debt and M2 provide the most important information about price movements. Treasury bill rate provided the best information, since it has the lowest MAPE. Conversely, the least important variables were the deposit rate, dollar exchange rate and M1. M2 provides more information about inflation than M1 in the sample period. We also estimated an inflation equation and determined alternately whether M2 enter the equation significantly. We found that M2 is not significant. Exchange rate at level, and contemporaneous value of the domestic debt, are significant in the model. The results obtained are robust across the two methods used and we concluded that although the monetary variables contained some information about inflation, exchange rate and domestic debt may be more useful in predicting inflation in Nigeria. A number of policy implications emerge from the study.
Volume (Year): 3 (2006)
Issue (Month): 1 ()
|Contact details of provider:|| Web page: http://www.usc.es/economet/eaa.htm|
|Order Information:|| Web: http://www.usc.es/economet/info.htm Email: |
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Sims, Christopher A, 1972. "Money, Income, and Causality," American Economic Review, American Economic Association, vol. 62(4), pages 540-52, September.
- Ellis W. Tallman & Naveen Chandra, 1997.
"Financial aggregates as conditioning information for Australian output and inflation,"
FRB Atlanta Working Paper No.
97-8, Federal Reserve Bank of Atlanta.
- Ellis W. Tallman & Naveen Chandra, 1997. "Financial Aggregates as Conditioning Information for Australian Output and Inflation," RBA Research Discussion Papers rdp9704, Reserve Bank of Australia.
- Sylvanus I. Ikhide & Abayomi A. Alawode, 2001. "Financial Sector Reforms, Macroeconomic Instability and the Order of Economic Liberalization: The Evidence from Nigeria," Research Papers RP_112, African Economic Research Consortium.
- Estrella, Arturo & Mishkin, Frederic S., 1997.
"Is there a role for monetary aggregates in the conduct of monetary policy?,"
Journal of Monetary Economics,
Elsevier, vol. 40(2), pages 279-304, October.
- Arturo Estrella & Frederic S. Mishkin, 1996. "Is There a Role for Monetary Aggregates in the Conduct of Monetary Policy?," NBER Working Papers 5845, National Bureau of Economic Research, Inc.
- Milton Friedman & Anna J. Schwartz, 1982. "Monetary Trends in the United States and United Kingdom: Their Relation to Income, Prices, and Interest Rates, 1867–1975," NBER Books, National Bureau of Economic Research, Inc, number frie82-2, July.
- Lars E. O. Svensson, 2003.
"Monetary Policy and Real Stabilization,"
NBER Working Papers
9486, National Bureau of Economic Research, Inc.
- Lars E.O Svensson, 2002. "Monetary policy and real stabilization," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 261-312.
- Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
- Ellis W. Tallman & Naveen Chandra, 1996.
"The Information Content of Financial Aggregates in Australia,"
RBA Research Discussion Papers
rdp9606, Reserve Bank of Australia.
- Ellis W. Tallman & Naveen Chandra, 1996. "The information content of financial aggregates in Australia," FRB Atlanta Working Paper No. 96-14, Federal Reserve Bank of Atlanta.
- Phillips, P.C.B., 1986.
"Testing for a Unit Root in Time Series Regression,"
Cahiers de recherche
8633, Universite de Montreal, Departement de sciences economiques.
- Metin, Kivilcim, 1995. "An Integrated Analysis of Turkish Inflation," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 57(4), pages 513-31, November.
- Friedman, Benjamin M & Kuttner, Kenneth N, 1992. "Money, Income, Prices, and Interest Rates," American Economic Review, American Economic Association, vol. 82(3), pages 472-92, June.
- Osterwald-Lenum, Michael, 1992. "A Note with Quantiles of the Asymptotic Distribution of the Maximum Likelihood Cointegration Rank Test Statistics," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 461-72, August.
- Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501.
- Orden, David & Fisher, Lance A, 1993. "Financial Deregulation and the Dynamics of Money, Prices, and Output in New Zealand and Australia," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(2), pages 273-92, May.
- Goodwin, Paul & Lawton, Richard, 1999. "On the asymmetry of the symmetric MAPE," International Journal of Forecasting, Elsevier, vol. 15(4), pages 405-408, October.
- Thoma, Mark A & Gray, Jo Anna, 1998. "Financial Market Variables Do Not Predict Real Activity," Economic Inquiry, Western Economic Association International, vol. 36(4), pages 522-39, October.
When requesting a correction, please mention this item's handle: RePEc:eaa:ijaeqs:v:2:y2005:i:4_7. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (M. Carmen Guisan)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.