Economy

This study presents a small macroeconometric model to forecast and simulate policy options for the Nigerian economy. The model consists of ten behavioural equations and five identities made up of ten endogenous variables and thirteen exogenous variables. Autoregressive distribution lag (ARDL) framework is used to estimate the behavioural equations using annual time-series data for the period 1981-2014. The predictive ability of the model is evaluated and found to be satisfactory as the mean absolute error (MAE), root mean square error (RMSE) and Theil inequality coefficient are considerably small. Policy simulations to quantify the impact of shocks to government expenditure, exchange rate and crude-oil price on the economy are analysed. The results shows that a positive shock in government expenditure raises aggregate output, total exports, total import, gross fixed capital formation, exchange rate, consumption, and inflation rate while interest rate falls; a negative shock to exchange rate has a negative effect on gross fixed capital formation and a positive effect on aggregate national output, consumer price level, interest rate, consumption, total export and total imports; and a negative shock in oil prices results in an increase in total imports, total exports, consumption, exchange rate, gross fixed capital formation and aggregate national output. Hence, the study recommends that the monetary authorities employ a managed-floating exchange rate to address the volatility in exchange rate and government should formulate and implement policies aimed at diversifying the economy to cushion the shocks that result from oil price volatility in the international market.