ANALYZING THE DYNAMIC RELATIONSHIP BETWEEN MACROECONOMIC VARIABLES IN NIGERIA WITH VECTOR TIME SERIES MODELS.

Abstract

This study examines the dynamic relationship among key macroeconomic variables in
Nigeria, namely Gross Domestic Product (GDP), Exchange Rate (EXCR), Inflation
Rate (INFLR), and Unemployment Rate (UNEMPR ), using annual data from 1993 to
2022 obtained from the National Bureau of Statistics (NBS). By applying Vector
Error Correction Model (VECM) and Vector Autoregression (VAR) frameworks, the
analysis explores long-term equilibrium relationships and short-term dynamics.
Cointegration tests confirm the existence of two long-run equilibria, justifying the use
of VECM. The findings reveal that exchange rate stability has a significant effect on
GDP growth (β = 2.70, p < 0.01), while inflation and unemployment exert substantial
long-term negative effects (β = -3.89 and β = -46.72, p < 0.01). Short-term dynamics
highlight structural rigidities in labour markets (p = 0.335). Policy priorities include
exchange rate stabilization, inflation control through monetary tightening, and labour
market reforms. This study provides a roadmap for fostering sustainable economic
growth and macroeconomic resilience in Nigeria.