Equation Error Correction Model Research Articles

Modelling the Dynamics of Exchange Rates and GDP in Nigeria: A Single Equation Error Correction Model (ECM) Analysis

This study eval_uates the effect of exchange rates on Nigeria's economic growth between 1990 and 2020 was examined. The exchange rate was limited to the nominal exchange rate, and real gross domestic product was used as a proxy for the growth of the economy. Secondary data were collected from the Central Bank of Nigeria statistical bulletin for the period of the study. The OLS regression and Granger Causality test were used for analysis in the study. The findings demonstrated that one of the two explanatory variables, exchange rate, has a substantial significant effect on economic growth. The causality test also showed that there is two-way causality between exchange rate and the economic growth. The study concludes that increase when there is increase in exchange rate, the economic growth (GDP) will increase in Nigeria since exchange rate is and essential and significant predictor of economic growth.

Structural and Cyclical Determinants of Bank Interest Rate Pass-Through in Eurozone

This paper empirically investigates the evolution and the sources of interest rate pass-through heterogeneity in the Eurozone for a sample of 11 euro area countries over the period 2003M1-2011M12. Considering two harmonized bank retail rates, we first estimate single equation error correction models (ECM) and find an important pass-through heterogeneity, both for household and firm rates, even if results suggest that heterogeneity is not a new phenomenon. On the basis of this result, we then extend our analysis by studying the role played by a large number of structural and cyclical factors on monetary policy transmission. Findings based on a panel ECM approach and a panel interaction VAR framework indicate that financial tensions and fragile economic activity following the crisis are not the only factors that explain the heterogeneous monetary transmission in the euro. The differences of financial market structures across countries, in terms of banking competition and financial market development, also explain a part of this heterogeneity. In terms of policy implications, this means that future reforms promoting a more efficient and homogeneous monetary policy transmission should not only focus on risk factors, but also try to consolidate financial integration.

Structural and Cyclical Determinants of Bank Interest Rate Pass-Through in Eurozone

This paper empirically investigates the evolution and the sources of interest rate pass-through heterogeneity in the Eurozone for a sample of 11 euro area countries over the period 2003M1-2011M12. Considering two harmonized bank retail rates, we first estimate single equation error correction models (ECM) and find an important pass-through heterogeneity, both for household and firm rates, even if results suggest that heterogeneity is not a new phenomenon. On the basis of this result, we then extend our analysis by studying the role played by a large number of structural and cyclical factors on monetary policy transmission. Findings based on a panel ECM approach and a panel interaction VAR framework indicate that financial tensions and fragile economic activity following the crisis are not the only factors that explain the heterogeneous monetary transmission in the euro. The differences of financial market structures across countries, in terms of banking competition and financial market development, also explain a part of this heterogeneity. In terms of policy implications, this means that future reforms promoting a more efficient and homogeneous monetary policy transmission should not only focus on risk factors, but also try to consolidate financial integration.

Increasing Size of Government: Implication for Output Growth in Nigeria

This study investigates the interaction between government expenditure and economic growth in Nigeria. Core public spending theories are discussed and time series data covering 1961-2011 period, used. The study is analyzed using two different econometric methods: the neoclassical growth framework and Granger causality test in examining the level of impact and direction of causality respectively. The growth model was decomposed into long run static equation and short run dynamic error correction model during the analyses. Public expenditure is statistically significant in promoting economic growth in Nigeria. A unit increase in public expenditure induces at least 16 percent growth in gross domestic product. The causality test between recurrent expenditure and gross domestic product reveal a uni-directional case; with growth running from the latter to the former. Also, causal relationship between capital expenditure and gross domestic product is uni-directional; with growth running from gross domestic product to capital expenditure. However, the result shows a bi-directional case between recurrent and capital expenditure. On the overall, we recommend that government expenditure be increased so as to improve the impact of government size on Nigeria’s economy.

Local Office Rent Dynamics

This study applies rent adjustment models for ten major European office markets. We capture long-run equilibrium relationships of demand and supply variables and their short-term corrections in a two equation error correction model. We test whether the local nature of office markets makes a model based on national economics inaccurate if local and national markets do not move in tandem. For this we employ a unique dataset, which includes both disaggregated and national variables to model changes in real prime rents for a group of premier and second tier office market cities across Europe for the period 1990–2006. We explicitly compare results that are derived from models that include different levels of geographic aggregation. Results of the two stage error correction model indicate that international office rents adjust to short-run changes in office related economic activity, lagged rent changes, and to the deviation of rents from their long-run values. At the same time our results offer no proof that error correction mechanism models for office rents improve significantly by specifying economic growth figures beyond the national aggregated level for the cities included in our analysis.