Time Series Analysis of Interest Rate on Investment in Nigeria

Adeniyi Olatunde Adenuga

Abstract


The paper examines the impact of interest rates on investment in Nigeria from 1986 to 2018, using co-integration and vector error correction approach. The specific objectives were to estimate the short-and long-run elasticities as well as the error correction mechanism of interest rate, inflation rate and exchange rate on investment in Nigeria. The outcome of the exercise validated the hypothesis that interest rate has impact on investment in Nigeria, albeit with mixed results as the first lag period of all the three indicators used indicated positive relationship with the growth of investment but the lag of the second period all indicated negative impact on investment. The error-correction equation of investment indicates a feedback of 53.1 per cent, of the first period lag but 47.1 per cent, of second period lag. Also, the error-correction term indicated low speed of adjustment with only 2.0 per cent.


Keywords


Time series, interest rate, investment, Nigeria

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