Markov Switching Mean Vector Autoregressive (Msm Var) Modelling Of Inflation Rate And Crude Oil Price Interdependence In Nigeria
TUANEH Godwin Lebari
Department of Agric. And Applied Economics, Rivers State University, PMB 6080, Port Harcourt’
Wiri Leneenadogo
Rivers State Ministry of Education, Port Harcourt Nigeria
Keywords: inflation rate, Crude oil prices, Markov Switching Mean Heteroscedasticity, VAR, forecast
Abstract
This study used the Markov Switching Mean Vector Autoregressive (MSM VAR) Models to model the interdependence between Nigeria's inflation rate and crude oil prices. Monthly data from January 2006 to December 2019 were gathered from the Central Bank of Nigeria Statistical Bulletin for the study. The upward and downward movement in the series revealed by the time plot suggested that the series exhibited a regime-switching pattern: the period of expansion and contraction. The Augmented Dickey-Fuller test was used to screen for stationary and the variables were stationary at first differences. The information criteria were used to test the number of regimes and 2 regimes were selected. Eight MSM-VAR models were estimated. The best model chosen based on the least information criterion was the Markov-switching mean heteroscedasticity – vector Autoregressive (MSMH-VAR) model with AIC (8.597689) and SC (8.944167). The model was used to predict the series' values over a one-year cycle (12 months).