An Application of ARDL Bounds Testing Procedure to the Estimation of Level Relationship between Exchange Rate, Crude Oil Price and Inflation Rate in Nigeria

Lawal, Ganiyu Omoniyi, and Aweda, Nurudeen Olawale (2015) An Application of ARDL Bounds Testing Procedure to the Estimation of Level Relationship between Exchange Rate, Crude Oil Price and Inflation Rate in Nigeria. International Journal of Statistics and Applications, 5 (2). pp. 81-90.

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Abstract

Bounds testing procedure is a powerful statistical tool in the estimation of level relationships when the underlying property of time series is entirely I(0), entirely I(1) or jointly cointegrated. A univariate framework for testing the existence of single level relationship between exchange rate, crude oil prices and inflation rate in Nigeria was postulated using ARDL (4,4,0) model in this paper. Bound testing as an extension of ARDL modelling uses F and t-statistics to test the significance of the lagged levels of the variables in a univariate equilibrium correction system when it is unclear if the data generating process underlying a time series is trend or first difference stationary. Empirical analysis shows that these macroeconomic variables have highly significant level relationship with exchange rate irrespective of the underlying properties of their series. The conditional level relationship model and the associated conditional unrestricted equilibrium correction model (ECM) in the long- and short-run relate crude oil prices negatively and inflation rate positively with exchange rate. The long run speed of adjustment to equilibrium reveals that exchange rate in Nigeria is slow to react to shocks on crude oil prices and inflation rate.

Item Type:	Article
Subjects:	Q Science > Q Science (General) Q Science > QA Mathematics
Divisions:	Faculty of Engineering, Science and Mathematics > School of Mathematics
Depositing User:	Mr Taiwo Egbeyemi
Date Deposited:	09 Jun 2020 16:21
Last Modified:	09 Jun 2020 16:21
URI:	http://eprints.federalpolyilaro.edu.ng/id/eprint/397

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