THE EFFECT OF STRUCTURAL BREAKS IN MODELING THE RELATIONSHIP BETWEEN MONETARY POLICY AND ECONOMIC GROWTH IN NIGERIA: AN APPLICATION OF THE ARDL

Abstract

Monetary policy is the key in sustainable economic growth and this has spurred many empirical studies in econometrics. The aim of this study is to investigate if the behavioural tendency of ARDL when the data is contaminated with structural breaks. Studies have shown that Nigerian macroeconomic variables exhibit hostile volatility and in literature, most works readily accessible do not consider structural breaks in their application of ARDL. This study seeks to find out whether structural breaks matter in the application of ARDL especially in its application in the evaluation of economic growth due to monetary variable shocks. The Zivot-Andrew’s unit root test that accounts for structural break is employed, the paper will compare the unit root result with the conventional ADF result, while the Autoregressive Distributed Lag (ARDL) bounds testing approach is used to investigate the co-integration among the variables of interest troubled with structural breaks and uncontrollable volatility. Our finding shows that researchers working with macroeconomic time series data in the contest of countries like Nigeria are advised not to use only unit root test such as ADF, DF-GLS, and PP that do not account for structural breaks but should employ unit root test that account for structural changes/breaks, such as Zivot Andrews test, the Chow test and Bai Perron multiple structural break test.