Application of Granger Causality Test in Forecasting Monetray Policy Transmision Channels for Nigeria

摘要

This paper focused on the causality relationship test with application to monetary policy transmission channels for Nigeria in the framework of vector autoregressive (VAR) model. Data used consist of three main monetary policy transmission channels (credits, exchange rate and interest rate) and are arranged on monthly basis, starting from January 2008 to June 2016. Granger causality analysis was carried out on the data in order to assess the potential predictability of one channel(s) to the others. The result shows a unidirectional causality relationship between exchange rate channel and interest rate channel, and between credit channel and interest rate channel. This reveals that exchange rate channel and credit channel was useful in forecasting interest rate, but the converse is not true. Also, a pair-wise Granger Causality test shows non-directional causality between credit channel and exchange rate channel, which indicates that both channels cannot affect each other. Thus, exchange rate channel cannot be used to forecast credit channel, also the converse is true.