University of Nigeria
Author
Research Publications
TEKE, John Nde
Title
Faculty
Social Sciences
Department
Economics
August, 1997
Signature
An Empirical Analysis of the Accuracy of
Macroeconomic Forecasts in Nigeria
(1970-1995)
Date
PG/M.Sc/93/14327
AN EMPIRICAL ANALYSIS OF THE ACCURACY OF
'
MACROECONOMIC FORECASTS IN
NIGERIA (1970-95)
I'EKE, JOIIN NDE
PG/MSc/93/14327
DEPARTMENT OF ECONOMlCS,
UNIVERSITY OF NIGERIA, NSUKKA
AUGUST 1997
AN EMI'IRICAL, ANA1,YSIS OF' 'THE ACCIJRACY OF'
MACROECONOh4IC FORKCASTS IN
NIGEMIA (1970-95)
nl- C.C.
ASU
SUPERVISOR
F,X'I'ERNRL EXAMINER
----
Prof'. f? .C. I3ob-Th1ru
DEAN OF FACII1,TY 01: SClII'IAI, SCIENTES
Prof. O.E. Ohimrl
IIEAD, 13EP'T. 01:ECONOMIC'S
DEDICATION
I
ACKNOWLEDGEMENT
Saying that a work of this nature was execured wilhout making use of the skills,
experiences. suggestiom and time of' a myriad of differen1 pcopre, is a fallacy. On the
strcngll of his. I sirnxrcly cxpl-css rny hcart-felt appreciation ro all of tllcm.
S p c i T ~ a l I y ,I rernai~lilldcbrcd to nly Supc~risors,Prof. A.E. Okorafor and Dr
C.C. Agu for their essenrial conlributions throughout the research. 1 also acknowledge
in a special manner. Dr C.C. Soludo for his constructive and useful cri~icisms. To the
entire staff of the Department of Ilconomics, I am immensely grateful for my general
academic up-bringing.
To [he TI3KE's family, and to MI-. N.jong pcter Alud, m y cousin, I convey my
warrn gratitude for t k i s love. cncouragernent and sacrifices which sustained me through
the duration of nly sludics. I a111also thankful to my friends for [heir support. Above
all, let us praise God for everything.
TEKE, John NDE
TARI,F OF' CONTENTS
vii
19
31
33
33
37
39
40
42
43
44
LIST OF' FI'GUREITABLES
&
1
1.1 Over~~iew
of the Study
Consciorlsly or not, forecasting occupies us all for much of our lives. It i s
accepted as an iutegral and necessary part of pky-making
at
nlt Icvels of ecmon~ic
Inanagenlerlr especially in economic dcveluprnci~cplanning. The household, the hlsincss
firm, the local, slate and national governnlents makc decisions ori r~xsourceallocation
based on forecasts. The government is expcicfcd to analyze patterns of change, and
10
predict economic trcrds which are ascnriul requiren~e~tts
for econ~inicplanning. For
instance, for a goverment to makc apprrrpriare decisions on correcfive st-r:~biliza~ion
policy actions, it musr h o w what path [Re xonolny follows; it
RIUSI
have a reason at?!^
accurate forecasts OF future econon~icdevelopmenls, SpcciFbcalEy, consickr a particular
case where
;I
central bank , in a reserves framework, seeks to stabilize a short-term
inkrest rate around a target value. Sellon and Weiner (19?6;5) stress that in this rescrves
-
framework, errors in forecasting reserve demarid or supply reslilt into volatilily of
interest rates around desired levels. The intuition therefore, is that for a government to
effectively run or redress an economy, and obtain desired results, setting of targets is a
pre-requisite: And setting of such targets reiy essentially on the government's ability ro
make reasonably accurate macroeconomic forecasts sibout the tit turo course of the
2
ccoriorlly
Rectnt!y, most devclopmg counfries (including Nigeria) art stnrggling 70 no avail
with l c l r i ~ i mof economic recowry prugntnn-tes. Even though much research s v ~ r kon the
4
Of course.
ib
is unrc;cmnal)lc tn expect error-frce forecasts in forwasting
si~,u;ttior~s.
'I'liis f'act is rccognisd by ir~cluclin~
nn irregular cnrnpmenl whcn describing
a time scrics. Thc prcscncc r>f illis nndoni coniponcnt, which represents uncxplaincd
and unprcdict;thlc fluctunlions in tl~cdata, nicans that somc
cmmr in kmcasting must bc
e x p t ~ r c d . I f Ihc el'fccl oT the 1-;1ridor11facf(~ris sitbstaririal. rhe at)i!ity to .for€cast
xcumrcly will hc limit~d.IT~c)\I!cvc~,(IIC effect of the unpredictable conipmenf is small,
fnwcxts shcmld track nctuals wirh rnorc accuracy.
r i c1101
~ ~ ~thc only source of crror in
Ncvcrthclc.~~.llic irrcgul:~I- c c ~ ~ i ~ p o is
forccnsting. Thc accurxy of a forecasting (ecliniquc infiucnccs the ~nagnitudeof crror
in frrrecasts. Since thesc crror divisions cannot OL' predicted in a practical situation,
f i m . x l crrcrrs rcpr'esclil tlic conlbincd effects of tllc s t ( d m t i c cmpnnenl {unsysfcrnaric
crm)r) nrid crrtlrs cri~nrinti~ig
fr-urn thc Sorccasting 111ctf~d(sysiemztic error). tlence,
signif'icnnt iorecasting errors m y indicate [hat unsysteniatic error is so large that no
fowcasring technique will produce accura tc forecasts, or thcy nlay indicate [hat the
fill-ccasting nietl~odhcirig used is not cap:~ljlcof' predicting accurntcly - an iriappropriatc
rc.c.111liqueis bcing etnployed.
C'rwsccpmtly, Illcsc u~irlcrcs~iniationor overestimntiori fc~rccastscould pose
sipiil'icant ecollo~iiicins~nl?ilityi l l a n cconon~y. When itilcrr~iedinteforecasts are undcrlxcdicted, tvllich mcans I'orccxts are sliort of actual values, the economy seems to be
cnntractcd wllcreas it actually cxparlds witliour nccornpnnyinp plmrwJ ecnnoniic politics.
persistent a n d
scemirlgly large forecast errors? Why arc Nigerian economic
~ninimuni, ir~spire of thc positive relationship that ex&
be[wwn i f ~ n d
economic
performance? CouItI i t bc hat tIlc random component r l f the forecaslt error (the source
o f crror about which ~iotliingcan bc dvnc Lo rcdxe the crror ~lrargin)is substantial? Or,
On a more gerieraI noto, tlic primary aim of this invesligahn is ra explore ways
to ilxscss tIic potcntinl contril~ulionof Ihrccastin~to policy rornlrllarion. Tlle following
spucific ohjcctivcs will guidc the study:
6
'To have an insighl into the nature of fol-ec;w ermrs rhat is observed in nioncy
(a)
supply. fiscal pap. and nct tlorncsTic credit f o r c c m ~o~f Lltc Nigerian economy
sincc 1970. Thc dislrihution ni [lie fcrrccast errors into unsystemlic and
y l c r n n t i c errw romponcrlrs wiPl
Rc cl'rccrcd
'Thc cvnluation oI' the clircclio~iof rllcsc intcrnic~linlcfo~rcaslsto rtc;lu,rl vaTues
(h)
since IQ70 \rill I)e carrictl out in o d c r
tn ascccrain
whether thcse foarcas~sare
unclc~cstima~ior~s
or nvcrestirnatim~.
1.4 IIypothes~sof the Strl-cly
The working h y p ~ h e s c snT this study arc sfatcd as follows:
I
:
There is no s i g n i f i ~ a fr)r;ccast
t~~
error in the i n t e r ~ d i a fmecasts
t~
observed in the
Nigcl ian wonumy since 1970. In otl~crwords. nbscrved tbrccas! errors of the
inter~ncdiatcvnriablcs arc tllc hrtrcst minimum rhar nlrlsr m u r (?I,, : ct = Z1 and
0=
1). Shrnrld II,,, Ix: rcjmted. Ilwn two w p a r a l ~lcsts for the respective effect
of r k 11m,7n
bias
3rd
vaciarlcc 6 a c coliymncnls CwT~icliconstiMc the systcmaric
crrrvf nf lhc forecast crrvrs arc
H,,,:
I ~ C C C S S ~ ~ ~They
I ~ C ~itrr:
~.
Thc expectcd mean of the intertncdiatc forecasts. cqu;~lsthc expected mean ~f
aclnnls. That is. thc obscrved systematic liorecafl crmr is ntfl accounted f c by
~ the
mean bins [IIn7:E(FJ
I :
E(h,)l.
There is no significant presence of the variance bias in the forecast errors of the
intcrrnediate variables of tl~cNigerian economy. ht differently, x l u a l series dc
considerably I'lucluatc as
I
:
ITILIC~Ias
the forecast series. (I-I,,:
0
= 1).
Forecasts of the iritcrn~cdiatevariables o f the Nigcriarl cconomy since 1970 are
unclcrestin~atcclas ortcr~n s tlicy are over-eslirnatd [I!,,,: P(F,
<
A,) = P(F,
>
f t ~ r c c ~arc
s ~ saccurate), r k y allow gnvcnmcnt to act incrcmentalfy on rhc cconorny. That
Secor~dly,rn:~crocconomicfol-ccasts can x r v e
II
monitoring rtmction and provide
a basis against which to jr~dgchow economic politics are working
mlt.
Any serious
8
knowledge of r7 !GI! is p i r l g on currently uughl to he consistent with tTx figures for the
ncar fi~lurcand tllc recenl pas[. Tt :ilso i~ivolvcsthc second p i w p k c a u s e if thc ourcorne
of cxisting ccoiw~riic policics as rcvcakd in rhc ~nacmccommic forccasls is
u n s a M x t n r y . ffcsh rrconrm~icpolicics will hnvc lo be i n t d t w c d . 1'kdissemination of
c~fl'icid!~~;~c.l-c~ccc~nrm~ic
forecasts tcl invcdvc all governmcrll ofTicials ns ivcll as [lie wlmle
cn~n~iitlnity
;I[ I a r p (public and private sectim) prrwidcs C V C ~ ~ O I ~
I Pi ~ n u l t a n ~ with
~~~sty
;t C O I I I I I N ! ~ Iview
of
~ ~ ' l l i 1will
1
linllpcrr u~ilcssson~cthingis donc. Each clicrciore. calr then
rcxt ktlrnvirly wlinl vicw of' t!ic futrlrc is llclrl c.lsc\vl~crcant1 c;rn cithcs cllallcngc that
view or propnse actitm tmed
.
1117011i t ,
.
I he foscgoing irnpor-1a11ceattached ( o nlitcri~ccoriomi~forecasts (targets) in
~
of cconoulic pcrt'orrnance is bascd on [he nrssumption that these
dicraring t l pace
forccrrsls arc r~taair~:ihly
xcuratc. Accordingly. inv~stigatinylllc accuracy of targets via
tlic dcco~nposirionof tlic discrcpancics hclwccn aclual and target valucs (of major
macroeco~~onlic
v;lriablcs) is crucial in undcrsta~ldingand explaitling the performance
Icvcl ol' tlic Nigcr'inri cccwotn!; since 1970. Ilcncc, thc idcntificalion of forecast errors
into bias. random, undcrestirr~alion and ovcrestirilntion errors should illuminate some
critical policy issues that coilld hc dcsigncd to improve on the economic pcrfornia~iceof
11ic Nigeri;tn ccononly. Su~nmarily,tllc fincli~igsof this study are intended to assist
ccnnnniic analysts/policy -nlakcrs in cvaluaring tlic forecash thcy exploit in order to
sat isfiictorily achicvc 11-lc ulility and reliability of the expcctcd uncertainty based on
MSE, = ( A
'rvI1~"reE
ib
tl:e
-
F
=
I
) = [E(U)JZ +
0:
..$2.5)
value, A , T: ;tnd U are vecrors of I-enli/:~~ions,
forecws!:; ;.~rncl
CIX~CC[C~
t'orccfist errors, r c s p x r i v c l y . l'lw s q t i a r u
- s r w t 01
hlSE, rllci~surtsthc averape
~ L oC f
.
j'.-0 1.LC.;I>;[ CI'I'OI'.
A rigorous a ~ u l y s i s01' rliu MSE, involws i ~ de::onywsirii~!~
s
in10~ h r e ec u n i p ~ c ~ i r s
of
i l ~ csaulws
of f o ~ w a s rrr-1.0s:
h.1SE, = I
'l'lic
Eik;,i
cmnprrcllr
oil lhc'
+
I
- - ( I -pf,)o:
., . ( 2 . 6 )
right or (2.6) is callccl the 111c;ln(bias) cwltponrnt, the
szcond. rlw. slope (variance) colllponent, and tlw thirr!, I! ~e residual (cuv;~ri;~nce)
cornpo~ienlof the MSI',. The unar~iin;~blc
case of pcl-fectiull occurs u hen E(U) =0, tlritt
is, when E(A)
--
E(F).
C o ~ ~ s i ~ ! c r(2.21,
i n g r!ie rcgrcssion s!~)pu 0, ccl~ralsunity cmly when the foremst
ci~cjt.IJ,, is ~111,-co1.1.cl:ttcd
wilTi
3 1 ~ :f
r >
o n i ~ ~itlucs,
. ~ ~ ~ I:,. 11i:i1 is,
when a,' = r~:.
'l'herefore, for perlect forecast (when RT-.coincides wirh LPF),
whuse A arid 1'
iIli
1hc rlll';lnS
d
sl
~~)TCC;IS(S
and i l ~ t l l ; ! l ~ ,
variarlcus 01- plcdic~ionsitnd r~eali/;~tions.
I, is
~ l l oslopc
of' dcler-rni~l;ilionI W I W C L ' ~ I'OI.CC;ISLS
and ;ic.luals.
ti
= 0,
and S,, ;ire the esliln;\lerl
usti~natei ~ n d;', i s the cocfi'icknt
for possible cvalua~icrnas I U
illc stmrccs
of forcc~slc m r . I:ir~;rlIy, cl~ecwfficiei-~r
indicates !he tlegm.
c61ch olI1~1'. 'I'lll
5c'
10 whicli
eit11t.r 111t
acrud or forecast scries fluciuarcs away from
p ~ . o p ) ~ . ~ i ((Ib
o r ~ s:~rn! U,.]
p r w m x 01' systcnt:~riccrrois -
1ll:11
wclrrison~chec:111se ~ F I Lj ifxricarc t l w
is, I'cmc;rsls s i p it'ic:~nrlyilil'fcr liunl. crl>scrv;~rio~ls.
I.,asrly. ~ l wcovari;tru proporlio~lis
.#.
;I
rnt.;mirc: of r l ~ eun~ys[en~atic
error I ~ Ioccurs
.
sttx.l~as~ically,
a~lclis Itss trouhlijl_~silxc w x m l i ~ ~
10g1'i~~clycR/I~ul~i1if'eli!
(1990; 34 1 j
"..,
it 1,s unrcasr)n;rble t o c x p x ~predictions [hill iirc perfccrly rlorrcl:trc.d with ;tcru;d outcomes
. ..". l'his is
s i ~hrciluse
r i a ~ i ~ n l l yr, ,
$ [I.
AII i l q ~ m : ~ r ;tcIitilion:d
ll
crirerio~insed Ibr roreci~srpca-fonl!:l~icc.is INJ:~
su,:i11 :ire
rtw iraciclcucc I?!' lurriing p
\VIWll
b i ~ :~ I l I
a c ~ c k r a ~ i errors.
o~i
A l i ~ r ~ i lhailll
~ l g w r u r i:; observcil
~
A~
Imll
-
A, #
F, -
ryl.l
. ..(2.19)
o
=
are coun~tI I i ~ ;~ccelcr-:~tio!~
s
c n u s~ 011wi 1nc.~suw5or limitccl :qydicxtiun irldudc lllc
1 . ~ ~ 1n1
u n scp~;ircclpel-CCINerror,
IIICiIIl
p t c ~ f i error,
l
~ I ~ cr i .I< i l l I
~OTCC;ISF e
t ~ ~rC I K X L ' ~
a ~ dcxpresxcl as
ME,
=
I
-1
(1;
- A,)
1.1
2.2 Fhpiricnl Lilcr;lt ur.c 1tt.vi~-rv
'I'llc d c i ~ c l a p: ~
I I i~of'
~ ir n u ~ n l of'I:lrgc
~r
scale econometric modcls clnfcs
:IS
the early 19.d's,
;~rld
cvcntwtly early U I ~ ; ) I ~ ~ C : I I S~LIL!,.T
011
!II(:
i19
far back
a ~ c u r a c y of'
~ l ~ x r o e c o n o ~ f'o~w:ists
nic
follov~A.'I'he~t.ri uclels w r e int?~,c!idto be usefi~1 I U ~ ) ! S irr rlle
;~nalys~s
ol rhc economic impacts of
tl
wide rnnrlc of policy : ~ l ~ ~ ~ - n a r thereby
i v c s , m:r'i.ing
I-csptuivdy.4hcr rr1rnt', t k s e v;irii~blc.sdc~crior:~rcd
;I-; r l ~ ufor ccast I.rorizon incrc;wA.
A cur~~parisor~
01' scnli-naiw forc.c;~scsgc~i~r:~tctl
by AKlMR ~ r u d c l s rcvcal pour
r q i s t e r ~ n gI i ~ r g cl<bISFI: or 1 1 .O for norni~ialG N P , 8 , 7 Su, real Gb!P, ~ I N I
~CI-!'OI-I~;IIICC,
O ti !'or-[Ire CiNP clcl7;1rrw.I:c~rer.iistsfrom lllcsc rnadcl.;, CIIIis1 noLuc1, could bc i:nprovCJ
1111 tntg!~s o l ~ c zbvc
l
j~rdgcr~~c~~l.
aiulysis in c
t
m
n cc;rntmic.~.111 vicw
ill' h i s (lpinion, Ilcz~kl;(1979)
~sx;ru~incs
r c s u l ~of' S I . F ~ < ' C I~)I ~ C I C ~ L ' I K I C I I Ico~i\p;~l'iso~~s
i ~ \ p u t n. ~ t p u tn~oilclsw i h (less costly :i,d
I
less so~d~is~icaiccl)
:rllcrna~ivcI;rrc.i.as!ing ii.cln~iq~it.s
~ ~ m i l i ~ l tCIui.i~l;:
c'J
1115
priucll !'rwi
195 1 rlwouyl~1972 in 11lc l.!~~itcd
S1:ttes of A ~ w r i c ; ~l ,~ d y Uri
, rain, kurwny, Tn~!l.l,;mil
t l NL'IIIC~I;IIICIS.
~
Using wi,qhwcl and ~ ~ n \ v e i ~ percer~l;~gl:
ht~d
en-ur-s h r
cii:~l1urion,111.
ul~sel-vcsrh:cl rt-rcrc were !-ton>alrsrwtivc ' l i w c a s i i ~ i gnwl!lc>cls which werl-.coiisisle~~ily
;I.,
goo~l;IS itqiul
~ I U I ~~
L Im\ ~
k l ls!c. I\IIY-C!'~NX:,
rcw!vcd [ h a t f u ~ ~ ~ : : vI'~.L~II\
its i , : ~ ~ r i d i ~ s ! f y
111oclt.t~prop:lg;~lcr i A ; ~ ~ i w lsrnnll
y
crwn-s i!vcr;~~.ir~g
~ULWCL'R
livc ;mi 11ir1epcrcc'nb, a114
\VL'IX
ilt
BCWI
;IS
;~ccLI~.;\~c.
!JICYW
I'I.OIII 1'111e~11;tfisc
ICC~I~~C~UC'S.
f!:.l~iployiriglllu nwan ithsolu~ccr-rol , arid Ihc Chow's 1'-test sti~tistk't;,rcsdts shawcd that
28
~imdcl~
:vi uppuwd,10
~ I I : I C C L I Ii ~l l;prc!i1;4i11ary
K~
esti[~mtcior
ev;ilii;irion mrlutlcd rhc FrrSli, turmi~u;
" I K I ~ I ~ ' ' ~urcc:\sl~,
1 ! ! d k t s of
crror r:ounr, and acct:lcr;\rion error counr.
Furtcnsrs gencrxrcJ fro111IIK h t c h r i u . k ! n1isr.c k)urld t o hu marc ;wur;lle
'rl
BII$
l wive
~
rli;111t
forccasts. i ~ n dsuperior rrl Norwcgi;in ~oi~ecasts.
Si.ns reharks r l w c ~ w - & ,h i t ' h e lo\v
h1SFE obscrvcil c ~ u l d!x i i ~ ~ ~ i b uto~ the
c d i~npruvc~t~cnls
cj'~'ccrcdnn t l ~ cDutclr mn:!. !.
Irl
I('
validnring n xiinplc t ~ : c l ~ ~ ) ~ l ri~odcl
l ~ l l . kdluy ~ l c \ ~ c ' l q )Ibr
~ d the nangl;: ';:dl
I
II
economy, I,:~ck~n;inand You (1979) c v a ! u ; ~ ~1d1 1 ~H C C U ~ K Y 01' lhe n u I e l by coinparing
s;rn~plc-csti~nn~ion-peritxl
l b f ~ ~ i iwirh
: . ~ ~n m a l v a h c s . The mwsurcs of imessrnent
I
I
included clnrts o r :~cruaha n d iorc~aslsvnl~rcs,arid TtMSl$ of G N P ; ~ n dI!:, conlpunznts.
7
111c cny>iric;~l~-cslrlrswcrv gcrlcrally ol~sr.rwd it: IIC I':~irly grv~tl. Il~rwcvcr, poor
.
pc~.l'un~i:~~lcc
was nc&:ci for pricc level irlltl noniin:il ,rrlpo:.l (:\rgds.
A I T ~ ~ ~[lie
~ I n~i sn L
y nlncru-cconornic eco~imterric rr1ode:s of the hli~eri;~n
economy, ~uusrlyh i l l by no~~-Nigcri:tn
cconornic c :iperu, Ar1:lrnsun (1978a) !it-lcclcd
LIIW
lo c o n l p r c rhcir rcspccrivu forccils~ingpel-lbrmanccs wit!^ 11me ol)txi~uIfrom
naive ~nc~hcxls
adopted by 111c Nir_lerim Centr.;ll lll;rnning Ol'l'icl:: (CI'O). Obscrv;~tiulls
O \ ~ C I - the.
peri(~I01' slirdy (1977 - 1970)
ic!..lj~:;lt~LILLtile
;iwr;LZc
~)CI.CCII[:I~Cci.ross
of
GNP, invesrnicl~r, corrsir~npriot~,
exports and irlil:or!s rccorrfed 50.8, 50.6, 37.2, Y. 1 a1;11
44.9 lbr rnncr~c~-cconame~~~ic
~cchniqws(models), and 30.6, 27.2, 13.3, 417.9 nnil 21.1
for naive ~nerhfils,respectively . A~l;now!cdginglht
superiority of the n,;\cro-.ccorrri!ne!ric
~iiodclsw e r naive i~lcrl~ods,
Adri~nsun hoi~~cver,
~.n111
ioned ~ ht n 11ln.w:!:i,pl~istic;~red
cslinlalc
:!.;
tw
:!!I @ihcf~~ ~ . I A C ~ O ~ ' C O I I N~ IO~T~~~~:C ; ' ~ S!Jc~'~cc!;
IS,
; ~ ~ s e ? ; s lit;.:
td
.. ; ! . i i i ~
I)y
computing the frcq~~--:ncy
w i ~ hwhich actual outcon-re k!I within rhe r:ingc of IWVlc',:
forecasts
-
u:dIcd 'success raw'. ZTc. observcll that rllc s a c c i s
I:OMU Forecasts of a!l rl~;ic~-oeconmuic
variabl;:;
f t w
all
ntcs
DT rhe r;~ngi:
I t c ~ r h m < r.c!a~ivc. to
prtli~~iiiiaayi ~ n d revised dal:i wcrc 51; 2nd 49 p m m t s , rcspeclivcly.
A
.JI'
~Iir?
~OLII--W;LY
comparisnn of' FOh4C's l i w c a s ~ s10 CEA, CI30 and privak scctor forccxts, rL-l:ualcri
nlixcd
1.c-slilrs.
prices, and low levels of eniploymcrir. The slump was roo great
rm even $hi: most m!m
321belicva- ot' [he c:q;ir:~lislsystem
ro wholly continuc
ill
.she Lxlirr or !he sysicm. Not orilg
the experimcc of' Ihe great depression, but nlso thc work UP Keynes (1930s) w:~sI:igl~ly
insin~rwn!al r f i the iwreasing role of government in
ccimr)nlyI il11~1s ~ l ~ ~ c l q ~fo
~e~ul
!hi: adoplion of econon~icplanning as a strategy of ~namigingtlx ccunrtmy. Keynes S:IW
s r m inrtrrucntim "as a nicans of p c l'ccting
~
capilalisrn.".
111
his ~ L ' I I C[II.m~lIy~. Kuyncs
foi-mul;tted rr 1ltuure1ic;rl t'ricmcivork in which he cilllccl for inlrncnse govenurroi!.
in~ci,Scr~:ik:c
in IIIC
L ' W I I O I I ~ 111rotig.Ii
~
active
moni:tary and fiscal policks. Eking an
;;iPvwaic 01' dci~wcl-sick cu.o~lo~ny.Kcynes ur:cs
govurnmcnr to bc m i v e in
consunq3iio1l. invos[nicnt, t'rnp!oyiricrx, aid r;tke all neccsx!ry actions tint are p;mmoItnr
ill
w:ril~\ai~-~ii~y,
t ~ i~icrc;\sing
r
:v!wj~:w~ ~ : I I I : I I :IS
I ~ il i s dcsircd.
Kcynes"ssug!ptions h:ivc sirlcc lxcnme powct-till tools in grwxnmenr ccunomic
policies I w R in Ihe dcvclopaf
3rd
1-crnovcd ~ l i c .wuakrlcss inliewnr
ill 111o c;~pit:~lisl
sywli.
dcidoping cconumits. I ! ~ w ' r w , they Ii;ive n~
As wouIcl be recalled, Keynes
Gene~.d'Elwry of'~'crsunly shorr run solutions. In thc ! ( j ~ run,
~ g his suggcstiori.; bccon~c
inadquati: so 1ha1cconon~icpl;innirlg 113s cuu~t'Lo he ;~l'i'q)[ed,
2s
a n ~ S S C R L ~imd
~ I ! 1:;votal
inearls of guiclirr~2nd accelcra[ing cconornic growth cspcci:~llyin developkg countries.
I-Ience, I ~ ra[iona!o
E
uf economic plnnr:irig as a dcvelopmenr tool r w : or1 the funclanwnr:!l
uconmk
i11rcl
ins:itutiorlal argu,rxnts of inarkel failure, resource mobilization and
al'lrnlton anlong o~llcrs.I-Ielfgoh and Sc11invo.Carnpo (1970, 11) in n Llnitcd Nations
Ir~lusrria!Ikvelopnlrnt Organi~atiurl(UNIDO) pblici![ioll pl-ovidt. rhe- following ex;ilicit
nliirkc~Liilul-c r:iliol~alt.tc~rscoiluinic pIarl~.ri~lg
in developing counlries:
Covcrnnxn~sc:innot, arid shou!d not, h k c
;I
i n ~ ~ ~ .passivc
cIy
rolc in
1hc prwxss uf i~dw!ri;d e q x m i o ~ ~Pi.i~irti~lg
.
lwi \wxrnc
ill1
essenlial and iiltugr;tl 3;n1 of iml~rs~rihl
devrlopcucm progrnrimrs,
for marker Sorczs by ~ h m s e l v c s cmrur
,
overcome rhc c1ti.p-sealed
structural rigidities in the ecotwmies of developing cou~lrries...
'I'oday, l l x nved tbr sclrnc degror ol' c:cunomic
planning is
u~~ivcrsally
rccugnized.. . In developing, coun~ries,platling is more
?'ca.;ihk ; r r d
t)lrll.i'
dcsirahlc
~
Tlu y,rc:t[cr ft:asil)ili\y i s a
I
io Ii t c v c l u l x c l
ITSFI!!
I ~ ; L I ' ~ c :w[ n ~ n i i r s .
01' [Itc s111:1\lerlri~i!~Ix-r
v;irIh!cs riw 1nus1 bc v l k c n irrlo consiclcrnrion, ;lnJ
clcsil.,?l)ilirys r m s
I'l-oni thr:
~lli:
grwrcr
fael 1ha1 the autc~rnsricrncc1li1nist-mfbr
lowci~ns.This is nchicved ~ l ~ m o g~t Ir K l b t ~ a s error
t
:lnalysis which r l h ~ t u d ~ ' ' i ~tod o ~ t
~ h cNigerian siru;l~ionwith n Gicw ro irnprming on the ciisiins lewls of lbrccns;ing
following iwu swps: Firstly,
[he mtim paint (1:)
is o n
;
l
parallel shil't of the rqression liw (KL) to
n!~c4 5 " di;igonal (LPF) ;IS
mean bias, and reduces llw
1 m 1 n S C I ~ I ; I fbremsf
~C~
11ic right
unti!
in Figure 2.1. T h i s climir~ales!Ile
error MSfI, IC oU2iis in equation ( 2 . 5 ) .
cnincidcs with 11-~i- I.PF ([hat is, 3 = 1). This Ii~rlhrr recluws rhe MSE,
LO
the
scaikr depending on which variable is [reared as thc p c d i ~ l ~and
r , wliich lhc pr~:dic~anci.
where
A, = change in actual
I:, = change irl forecast,
(M%)
crircn-ior~which is a conlbina~ion af ur~bI;~,iudncss
:lid
m i n i l r ~ u l r l rnriance
(1990; 223) says of [lie rni1iitnu1-n MSE crirerinn:
and ux~crdcilupon by Mi~~ucr.
and Zar~lowiu(1969) prnvidcs
tlx b:~sis I'h. which !he
(1992; 232) p t s i t , can kt: eslln~ntctl by [lie OIS rnclhod provir!cb the errors in t h i
(1086) implies ~ h a cregressions in l c v ~ l s{or log-lewls) may hc of a sl!urims anzure. Tliis:
rnenris t
l r~cilhsr
~ ~ the parii~iwterc-alinwtes nor ~hcirs!a~~lar'J
errors could be reslccl. I n
I-laving pr.ocul.ed the pamnwer estilnares, the technique f'oa evaEuation involves
of' 111csmcruritl rrdjusrn~enrprasramrncs (SAP). Simple tincar regressions
;I,:
cfliicrcd
covering 1970 - 95, 1970 - 85 arxl 1986 - 95 period-; for c.wh of [he rnncroccanornic
1986
- 95:
A, = 0.79
+ 0.5~1'~
-
I*'
= 0.71
F, = 6.76
(I)
(-2.04)
d,
I-'
-
1.01
= 0.23
4.13 I'crccnugc Growth R w of Ncr rloniesric Credit
1980 - 95:
A; = 1.00 + O.l31",
-1.-7 = 0.77
I:, = 8.01
dL = 1.19
I-'
=
0.46
[NDC]
statistics are d d i n c d anil expressed in sec~ion2.1
Tablc 4.1:
1'ar'ri:il I n q u a l i r y COL-fl'icizn~s
:IS 1)ct'incd by Kou~wyiannis(19771, and
I'indyck Rubinl'ctcl (I99 1).
NDC
IYHU-95
U.97
ILJ8?)-RS
1
-
3
3
0.74
0.42
U.31)
17.02
19.01
16.57
3.73
7
3
1
7
7
1.50
0
2
2
4.53
4
1
5
5
(1969) Ithey txpardcd and dircctlg cxretnled the Il'heil's fbrirmh~ianj~c displayed
have a clmr t~r~rlcrstnnifing
of the diffennrials of forwasr error.
EO
O h c r tllan the rcgrcssion of ~norwy supply actuals on L'orccas[s, all' ? of the
rcgressions covering ihc whole pcriod under study appear ro be high. SAP period ?'s
seen1 to be hcllcr !ha11 those of RED period. Tlhe t-ratios arc reasonably high for all
IL.
cases. According
LO Kou~.soyian~iis
(1977:97), a
Iiigh ? (7') is believcd to l i ~ v t :a clear
rncrit oilly when combincd wilh a high L-ratio( t h a ~is, low stmilard error). Hence, the
turning poiut e i n m w c ~ ccommitrcd. 1'tler.c were 19 Lases of ~celeralioncrrurs.
4.2 Statistical Tests ol Signifkance
'~'llis
section involves ~esllng 11le sign;ficrtnce of uveraall regression and the
valucs. III olliel- words, tl!e cocf'fi~ien[of' de~~'rinin;l1i0~1
lxlween acliialu and Sorcc;!us
is nor s~g~lil'ici~nr
(I-'= O),
4.3 Esm~iluliorlut' Algcbrl~icS i p s of Pr~rameterEsqinrates
To :tcctlpr the outcomc of an estim;tlion exercise, the csrinra~csof h e p;zran'lett.rs
are required ro be th~v~rc.tically
nlcarlingf~~lll
m d statislica1I.y satkf;;rciury, Though [he first
order rusts st'sta~isricalcl.i[cria arc l-sscl~ti;~!,
preference is still given 10 !he ecanomic 'a
priori' criteri;~. In support of t h i s view, khis i s whal Koutsoyiannis (4977: 26) says:
IL shoiild be rwreil rhar
ilie
'ir
i k s\atis~JC;lt criteria arc .jeco~daryonly
to
prioir' rfnomical crirl-ria. '1%~ esrrmates of 111cp;irari~eters
should' bc rcjecred in .n_cmr;lliI' they happen ta have ~ l w'wrong'
sign (or size) cvcri rhough rhe corrdnlion coefficienl is high, or [tic
signi ficarir .
Irr wlr cases, the pamrnetcrs, ll~iughslat islically
Slwuld ehe estin~aresof alle paramctzrs rurn up with signs or sixes not conf~nniri~r
tu
economic: rheory, Kmtsc~yiannis (1977: 261 believes they r m y bc attributed to
def'iciencics of tIrc empirici~ldata en~ployedfor .the estirna~ionof the model. Also, Rao
and Miller (1977: 44) ~ h i n k h a t 'wrung signs are usually warfiings
of irlcovecr
definitions, spxifiurions or inwprcra~ions.' Nevertheless, Koursoyiannis (1977: 26)
suggests i h a l n wrong sign es!ins:itc is acccpretl if and only if thcrc Is gotril reason lo
bclicve !hat in rhe parrlcular instance, rhe principles of econollric theory do not hold.
I'k hli~~cr-Zarnowitz
hypo:hesis posn~lstesrhat a forecast is ~m'biasedand efficient
c M n u c l in sec~torl3.3 are sratlrd
..,. . , ..
;IS
fulfows: l'k signs of 'a' aml 'I,' arc expetred td be
Fur nfl n i w rcgaessiun c1-lses, 'a' and 'b' are positive. This conforms wizfi ' a prior'?
(bcc:rux of'hi3h w k i n u c of ahc. csrimates) for the evaluation 01' rlw srarislic:~lsign; l k i > ~ l c c
c;~lcl~l;~rccl
411: 11113 a s s u ~ n p i o nof' I ~ o ~ - : ~ L I I L ) c o ~~~. S~I c
TU
' IT~~~; ~cI ~I IC;ire
C I . :Y ~ I ~IIuwcvcr,
c!.
il'd-
< (1, u r cI, > PI,., her(: is scrious :turocorrclation (positive or wg;ttiv:, rq-xclivcly).
Wilh samplz size (n) and K dcgress
I:)['
I'rccclo~n,the rnbukired D W d-s~:~rislis
limirz
are .csr:Misllsrl rzr one or flue percent Ievd of significnnrrc.
K i:; h c n ~ m b c ro!'
'I'ablc 4.6;
12esulrs of' Aulocor~clatior-iTest
'I'ablc. 4 . 0 indicates that the regression ecluarions are free of scrious autoco~.rr:larion.
4 . 4 . 2 Test Foi. I-lctcl.osct!dasii~ily
,
.
1 llc ;tss~rmprionof hornosc.~.~l;~siiciry
says rhst [he puliahiliry distrihricrn
d ~hc
relied u p n for interprewion
aild
predictive purposes.
*.
1 he empirical evidence emanating from [he ;inal.ysis as reucalrd in Table 4.8 is
uscd to ev;ilu;~tetllc t~yplhesesof [his study.
1970-95
1970-85
1086-95
-0.06
-2.38'
2.40'
4.55'
4.34'
6. IS'
-2.3 1'
-2.26'
-2.03
=
1 rejects h e joint null
lcbcl
of significance, 'I'hi:;
Talrlc 4.8 s!~owsthar ~lleF-tario tcsr for a = O nrrd /3
hypolllcsis of' unbiascdmss and efficiency
m a n s 1ha1 there arc sigriifificanl
f'onu5r
211
five pcr'ccnr
0.500
0.500
0.363
errors in tflc intermctliatc furccasts ul~sorvcdi r ~
111,
58
I
rhz Nqwinn cconom) sioclc 1970.
inrc~.~lwdiatc
vasiablw arc
Iri
r n w c;i.;es
riot
In cllller words, observed forecast eciors r;f i h :
th'-l biiwst rninirnim~rhat could occur.
L-lestfor E(F) = 13(:2) inJicates that the expected n u n s of thr
I!IC
forecasts :?rc nut equal to i l i t e x p c c ~ dmeans of
xrllals.
That is, the nbwrved sys~crn;rtic.
and/or unsystematic f w x a s t err-ur is parrly ascourrtcd Tor by h e rncm bj:rs. Ilowrvzr,
rhe dcgrct. of unbl:mxlr~ess(as disclosed in TahIc .I .5) is relntively minor.
Most of [he forecasts app::ar inefi'icient. Tclc regression sbpes (b),
bias in h e FOI-ccas~crru:-s of the Nipxiim economy
shown in
3s
Pur d~fl'cn:t?tly, i!ct~~:\l
x~.icsi10
1101
ci;~~sidcritbiy
l'lu~ruart:;:s ~ n i ~ cash 111u Sor~.zasrserics.
1.irstlp. the sign
t c ' s ~ [13,[s)1
inlp!ics [h:!~ I~ICI-c
are a nurllbcr of cascs wl~isrethe
ibrwasts ;-\reitmtcrestirnnted as often as they are overes~i!nn[ed. FIowcver, a systematic
a1K1 rc-~;~rcdly
0bse:~ve3 property of forccasrs in t h i s s w t y is
u~xlcrestimarechanges. I-Ience, tile prirrclpal bias is [hat of
L~K'
lendency
!~rtdti*l:s~ilitarlon.
4-6 t)isctrssii,i\
'i'lil: empirical cvidencc: from ~ h an;rlysis
t
uxprevxs tTwt tlx 'TIwil\
coeITicic.slts are low ([II
ir~~plic:t~ic)ri
uf this is
< I ) for
t ! l ~rhc
~ a r i a b l c u;!lu h i r l y gnuil.
211
iinequaliiy
sels nT forecasts eniployccl in h e sruily.
!'orccas~ing pcrl'o:rrl:mce
The
o r tlicsc monttiiry arxJ fiscal
Novcrthclcss, 1!1esc f'lrrec~srsstill Z ~ v zsonx ~1e~rt.t:
of
rarional cxpcct:r~bnsin ;!nnlyzii~gmacroeconomic policy. According to Papell (19%:
151). 'pcoplc arc rorwrrrd looking, and their expectations of r k fu~urecan !w modc!cLl
will1 some accuracy by rtssuming economic iluctuntions a n d r h ~ [hey
t
use lthcir i ~ ~ i i m ~ i i l r i ~
,*
fortmsr error is ~ririciil in rhc formation of accurate cxprcr~rionswlricli are csscnri;il i n any
economic envirorunm.
Tlic empirical findings iri rhc preceedi~~g
srcfio11 may bz s~ilrecl a!nmarily [hat ~ I I C
i11rerlnedi;trcn~ncrocconomil: forccasis of 111eNigerian economy are rclnrivcly biased, inefficiellt.
3.
.
Tablc 4.5 shows rhnr \tie ccrefil-iccirs of dcrerminmior~s(rZ) r:inge from 62-88 percent
-
.,.rJ,
irnplymg
r l u r forccnsrs explained as nluch as die r;lnge of the variations in acrual values of the ;rflLciecl
variables. 'Illus, o11e would
no^
expect a l#
pcnuciil a' because of he existence or olllcr fi!ccor.s
txononly whcrms rhr economy ncru:~llycxpmds wirhour any accorupmyiiig plallncd cconornic
1980s [lmugll the early 1990s (Ojn. 1945: 96).
This period
[lad
an a v c n p GDP growrh rare o f
3.5 pescrlrr. Considcrisna, a CDI' growrh raw of' 1.2 pcrcerlr in 1387 againa 3.5 pcrcenr. ojie
could think of [he i i ~ s ~ i ~ l lpcriocl
~ l i ~ y ;rs rxpansruwry (CBN, 1989). During the period jusr srated
:tbove, [he actual ourconlcs (on rhe avera_sejoI' F:G = 9.2, MS = 32.6 and NDC = 37.5 exceeded
forrcascs o f FF. MS
nnd N K were undcrfitiorared rrspectivcly, by 5.2. 17.4 arid 26.6. 'l'llcse
~i~di.resrir~~arionu
arc psistenr, a d as ruch rRt iorqoing analysis is in conl'ormiry wirh the rc;d
61
situation in
the Nigerian economy. In agrccmcnr with the above ernpi~icalfinding, CI3N
(1991: 14) rctnarked in
A1111ualRcport am1 Staten~mtof Accou~ltsthat 'Overall, the
potcnlial L'or impressive ccotiomic perforrnancc in 1991 was only partially realtlixd which
could IK attributed partly to tlic cu~i~mnlafivc
cffecl ~ f the
' continued (Xivcrgcntebetween
actunt macroeconomic outcomcs am! Ilie targuts. espccialiy in respect of government
fiscal opcrat ions, rnonctnry a g p g a r e s and tlic exchnngc rate'. The qualifying word
'cunirtlul;~tivc'cmptiasizc.; ~ l l epcrsiq~cntdiscrepnncim hctwecns tlic rolecast and actual
valucs of' thc inlcrmcdiatc ~nacrrxcrmomicvariables obscrvcd k f v r e 1901 (CRN, 1990:
12). Fi~rthernmre,thc data presented in 1 1 1 ~appendix show lhesc diuergencca.
IIaving diagnosed the forecast errors of Illc variables undcr study. we found the
sIopc (variance) cornporienr of Ilx systcrriatic error to hc thc dominant and most
problematic error
ill
thc i~lvestigntion[scc 'Thhks 4,2 and 4.3). 'I'bk is thc crror-type
which denmnstrates thc inability of fluctualions in forecasts to [rack fluctuations in actual
valucs. Put dif'ferently, the estiniatcd functions oT a formas~ingsplstcni do not track
x t u a l trend. IIence, o n thc basis oT thc result of this diagnosis, we recomnlend that the
cxisting forecasrisn~tcchniqucs in thc Nigcrian forecasting system i,Itile economy should
he rcstmturcd in ordcl- to gct rid of tIic systematic error. In so doing, we shouId bc
ahlc to improve on our forccasling accurac? or the Nipcriarl cconomy. and thereby
elirni~iate some of the losses I-esulring iron1 uncertainty in the niacroecono~nic
rnanagenxnt decision-ma king pmcss of t k economy.
.
poinu are ~iiissacd.'l'hc sludy onds w i t h thc discussion mcl irnplicnrion of the resul~s:rI1;lt
.
ilk
--
instabili~yobserved in [he Nigerian economy since I:m 1980s thluugh thz carly 1930s
Cwgg , J . V . ct a1 ( 1 %7), Mlrrl~~tnntiiul
T I - ~ JCIII-VCS:
T I ~ An Aid
No. 1, Edinburgh, Olivcr Lf;r Boyd L,rd.
lo
F~JI-wcusriu~,
Mnlmgr::ph
iloopcr, J . and A . Zcllncr (I96 11, "The Error of Forecasr for kful tivariart Regression
Models, " Lc~numerricn,29, 544-555.
thc I'ltxlictivt: P~'rfon~lancc
of Econrimclric
Motlcls. " f~lkni~rrion~rl
G m ~ u ~ t rReview,
ic
15, 3G6-383.
Hc)wrey. 17.
el ill ( I1)74j."N:iolcs on 'l'csting
L x k m a r ~ C.
,
J . You (1970), 'An F*oimne[ric hlodel of Bangladesh and Evaluatinn
of rhe I-:we-year L)c.ll;clop~-~cr~~
I'Enn, " Economics of P l n m i n g , 15 ( 2 S: 3). 126141.
I:ao,
P , a n d R. I,. Millt.1. ( 197 I ) , Appiirci Erano~rterrics,USA, Wardsworth.
Zuvl-kas, C . ( 1979), I:c'~vio~rlicDewlopmnr: An I t l ~ r c ~ h r f E a ~USA,
r,
M m n i thn
I n r c r ~ n ~ ~ r i Press
~ n a l I-rtl.
-
(I-',) FUI LT.IS~
5 I
7
70
Y .3
75
7.1
87
.1 5
Y I
Y S
13.1
It1 b
l j
L
17 j
0.4
16.2
--
--
--