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Dizzle 4
Dizzle 4
METHODOLOGY
where
u = Random variable
Equation 3.1 represents the functional form of the model. The mathematical
or the equation form of the model is written as:
Ms =
The log value of money supply and the value of treasury bill (VTB) can be
taken due to the large magnitude of the data. Hence, we specify our model as
follows:
log. Ms =
The procedure for estimation adopted in this study is the Ordinary Least
Suare (OLS) because of its small sample properties of BLUE. This method
attributed to Carl Fried-Rich Gauss, a German mathematician is preferred
because it is easy to understand, simple in its computational procedure plus
its parameter estimates, which have some optimal properties of linearity,
unbiasedness and minimum variance among a class of unbiased estimates.
Due to the limited knowledge of applied macro-econometrics the researcher
is hampered in investigation of the detailed econometric analysis. The
regression results will be weighed basically on two criteria, economic criteria
and econometric criteria
The variables used in the estimation are real variables only, having properly
adjusted them for price changes where applicable, the natural logarithms of
the variables are used in order to ensure better estimation. The data on Broad
money supply, minimum rediscount rate and value of treasury bill was
obtained from the Central Bank of Nigeria statistical bulletin while data on
inflation was obtained from the Federal Office of Statistics from (1970-2003)
(A) STUDENTS TEST: This tests the significance of each of the explanatory
variables on the dependent variables.
(B) The F-TEST : This tests the overall significance of the explanatory
variables on the dependent variable.
The unit root is used to test for the stationarity of the variables used in the
econometric models. By this, we mean that the mean value, variance and co-
variance are constant over time. For this reason, we will use the augmented
Dickey-fuller test (ADF) to test for the stationarity.
This test is carried out using the correlation matrix, this suggests that if
the correlation coefficient is in excess of 0.8, then there is a serious
multicollinearity problem. If the coefficient is less than 0.8, we conclude that
there is no multicollinearity.
The result of the model was arrived at by estimating version forms of the
model equation thereby general to specific approach to model selection.
However our analysis is based in equation 3.3 and the result are presented in
the table below. The modelling procedure employed is the OLS and the
econometric software package used is E-views 3.1.
TABLE 4.1
REGRESSION RESULTS
DEPENDENT VARIABLE
L0G (MS)
TABLE 4.2
As the money supply increase, the tendency for the government to use open
market operation to control increase in money supply increases. The action
results in order to decrease inflation or to keep inflation at a certain level. The
result of the model and the analysis show that inflation and monetary policy
is negatively related.
ii T- TEST
This test is based on statistical decision theory. This test is carried out in
order to check the significant influence of the independent variables. The test
shall be carried out under the following hypothesis.
H0 ; = 0
H1 ; = 0
DECISION RULE
t1 (inflation) = 0.3435
t0.025 = 2.04
Thus since /t / > /t1/, we accept H0 and conclude that the inflation is not
statistically significant.
t2 = -0.8133
t0.025 = -2.04
Since /-2.04/ > /-0.8133/, we accept H0 and conclude that the minimum
rediscount rate (MRR) is not statistically significant.
T3 = 20.303
T0.025 = 2.04
Since /20.303/ > /2.04/, we reject the null hypothesis and conclude that the
value of treasury bill is statistically significant.
The F-test analysis shall be carried out under the following hypothesis.
DECISION RULE
Fcal = 420.8050
F (3.31) = 2.92
Since Fcal > Ftab i.e 420.80 > 2.92, we reject H0 and accept the alternative.
On this ground, we also conclude that the slope coefficients of the money
supply functions are not zero and that the model is not of good fit. The
implication is that the overall model is significant.
4.2.3 ECONOMETRIC CRITERIA
Under this test, we are interested to know whether the assumption of the
ordinary least squared method adopted in this analysis. The tests are
presented below.
H0 : P = 0 (No autocorrelation)
Against
H1 : P 0 (Positive autocorrelation)
At = 5%
Decision rule:
n = 4, k = 3
4-dl = 2.729
H0 : There is no heteroscedasticity
H1 : There is heteroscedasticity
DECISION RULE
X2o.o5(6) = 12.5916
X21 = 2.670956
Since X20.05 > X12 we accept the null hypothesis that there is no
heteroscedasticity in the model.
X2 = Inflation rate
NM = No multicollinearity
These test are based on statistical decision theory on hypothesis testing. For
the reliability or significance of the included explanatory variables in the
model, we shall assess this based on the t-test.
We can conclude that the constant and the log of value of treasury bill is
statistically significant while inflation rate and minimum rate is not
statistically significant.
The results of the model and the analysis show that inflation and monetary
policy is negatively related. This can be illustrated by the aggregate demand
and aggregate supply function.