Modelling the impact of long-range dependence and heteroscedasticity on economic growth of Nigeria using TAR-FIGARCH model

Abstract

This research work is based on modelling the impact of long-range dependence, heteroscedasticity and regime switching in the economic growth of Nigeria using TAR-FIGARCH model on account to capture long-term memory persistence, changing variability, and identify different growth regime in the economic growth of Nigeria respectively. The data for this research work was collected from World Bank record spanning from (1960-2022) in dollar. ADF and KPSS Tests were used to test for stationary. Partial Autocorrelation Plot was used to estimate the model order. TAR Model with two regimes was fitted to analyze regime switching with quick and slow transitions and to segregate volatility into low and high states using delay parameters and variance weights. The total variance weights of the two regimes is (0.6259 + 0.3741 = 1), thus the model fits the time series. The estimated delay parameters of first and second regime are (55.3637 and 0.3173) respectively. The research work revealed that second regime is characterized by quick regime switching. Moreover the first regime has high volatility accounting for approximately (52.23%) of the total variance. Thus, this indicates economic instability, economic uncertainty and increased risk of economic downturns. The research work recommended that Central Bank should consider adjusting interest rates to stabilize the economic growth and Government should implement targeted fiscal policies to mitigate the impact of fluctuations. The future work can employ three regimes TAR Model to separate the economic growth into low, medium and high regime.