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Rivers State University, Port Harcourt.
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| Title: | A Comparative Assessment Of The Performance Of Error Correction Mechanism And Vector Auto-Regression: A Case Of Money Demand Function In Nigeria Economy |
| Author(s): | Ebhotemhen Wilson & Njoku Kevin Chinaka |
| Abstract: | This study anchored on the theoretical foundation as well as existing reviewed of empirical literature on money demand in Nigeria Economy. It addresses methodological problems in money demand function which is based on the empirical evidences supported by the previous studies. This study compares the predictive capacity of the Error Correction Mechanism (ECM) along with Vector Auto-regression (VAR) Model. The results of the previous studies revealed that, exchange rate, real deposit rate, interest rate and inflation expectation are relevant determinants of the demand for money in Nigeria Economy. The study found out that any estimation on demand for money using the ECM yields better, robust and reliable outcomes than using VAR technique. The study also identified the need for further research based on the constancy of money multiplier, the role of interest rate and close money substitute are required to boost the efficacy of the monetary policy. The study therefore recommends that the monetary targets relating to the predictions from the use of conventional estimates such as Ordinary Least Squares (OLS), VAR on money demand order than the application of ECM may not bring the required outcomes. |
| Keywords: | Error correction mechanism, vector auto-regression, money demand function and Nigeria economy |
| Journal: | Journal of Contemporary Research in Economics and Development Studies (JCREDS) |
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