A Conditional Restricted Equilibrium Correction Model on Nigerian Stock Exchange All-Share Index and Macroeconomic Indicators with 2008 Global Financial Crisis Effects: A Univariate Framework Approach
No Thumbnail Available
Date
2015
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
Scientific and Academic Publishing
Abstract
This paper employed the modified autoregressive distributed lag (ADRL) procedure to establish a univariate single level relationship existing between the Nigerian Stock Exchange (NSE) All-Share Index and three macroeconomic indicators such as Treasury bill rate, nominal exchange rate and inflation rate in Nigeria. A conditional restricted equilibrium correction model (ECM) was postulated with significant long-run relationship between NSE All-Share Index, exchange rate and inflation rate. The model relates exchange rate and inflation rate negatively with the All-Share Index in the long-run. Treasury bill rate have no long-run relationship with All-Share Index. The short-run dynamics indicated a negative causal relationship between All-Share Index and the three macroeconomic indicators. The results of this paper showed that All-Share index is slow to react to any disequilibrium caused by shocks on these macroeconomic indicators in the long-run. The 2008 global financial crisis had an insignificant negative effect on the NSE All-Share Index due to
improved financial deepening. Monetary policy stability is crucial to price level control because inflation is a monetary phenomenon in Nigeria. Therefore, this paper proposed that the efficient use of Treasury bills as apparatus of monetary policy (inflation-targeting) and major source of government financing is essential to the growth of the Nigerian stock market. In addition to efficient monetary policy through interest rate and most importantly exchange rate, a secure fiscal discipline through effective government spending will likely have a positive effect on the All-Share Index rapidly and directly.
Description
Keywords
ARDL, All-Share Index, Treasury bills, Nominal exchange rate, 2008 global financial crisis, Financial deepening, Inflation-targeting, Monetary policy
Citation
American Journal of Mathematics and Statistics