Structural Breaks in Nigeria’s Macroeconomic Time Series Data

Abstract

This paper investigates empirically the analyses of structural breaks in Nigeria’s macroeconomic time series data using annual data spanning from 1970 to 2015. Among other objectives is to examine whether there is stability or breaks in the mean level of interest rates, exchange rates and inflation rates over the periods under review. The paper adopts a Lee and Strazicich (2003) unit root tests with multiple break test using LM approach to examine the stability of data employed and structural changes in linear regression model, using Chow test to identify the break dates. The paper further assumes three different dates – 1970 to 2015, where there was no break, 1970 to 1986 before break and 1986 to 2015 after break, at which there was a statistically significant breaks. The F-statistic test from the Chow test results indicates 28.98, which is greater than the 95 percent critical value of 2.62. This suggests that endogenously determined breaks for the macroeconomic variables (interest rates, exchange rates and inflation rates) of the Nigerian economy was found to exhibit structural breaks within the periods under review. This implies that the null hypothesis of no significant relationship between structural breaks and macroeconomic variables in Nigeria was rejected. Based on the above evidence, the paper submits that there should be an adoption of regime switching models that will minimize the potentiality of breaks in time series data in Nigeria.

Keywords: Structural Breaks, Macroeconomic Variables, Chow Test, Nigeria.