Form is ramseys 1969 reset test for functional form

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multiplier test of residual serial correlation (see Harvey, 1981); Func. Form is Ramsey's (1969) RESET test for functional form specification; Normality is the test proposed by Bera and Jarque (1981); Heter. is White's (1980) test for heteroscedasticity; ARCH is a test for autoregressive conditional heteroscedasticity (Engle, 1982). In addition, Table 4 presents diagnostic tests of our model. No evidence of autocorrelation in the disturbance of the error term was found. The model passes the Jaque-Bera normality tests suggesting that the errors are normally distributed. The RESET test indicates that the model is correctly specified while the F-forecast tests indicate the predictive power/accuracy of the model. Finally, the R-square of 0.53 indicates that 53 per cent of the variation in import
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160 Musibau Adetunji Babatunde & Muhammed Isa Shuaibu demand is explained by the variables in the model. Hence, on the basis of these statistical properties, it is reasonable to say that the model is fairly well behaved. Thereafter, it is necessary to check for the stability of the function. The model passes all the diagnostic tests including the cumulative sum of recursive residuals (CUSUM) (Figure 2a) and the cumulative sum of squares of recursive residuals (CUSUMSQ) tests (Figure 2b) of structural stability. This indicates that the parameters are stable during the sample period. Figure 2a: Cumulative Sum (CUSUM) Test for Stability Figure 2b: Cummulative Sum of Squares (CUSUM SQ) Test for Stability
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Money Supply, Inflation and Economic Growth in Nigeria 161 VI. CONCLUDING SUMMARY This paper estimates a monetary growth model for Nigeria by examining the existence of a significant long run relationship between money supply, inflation and growth as well as to identify the possible determinants of portfolio holdings to identify the main economic fundamentals that influence the relationship between 1975 and 2008. The study makes use of error correction mechanism and the bounds testing approach to cointegration within an autoregressive distributed lag framework. Quantitative evidence reveals that there is a positive relationship between money supply, capital formation and economic growth in Nigeria while there is a negative relationship between inflation and growth. The implication of this result is that the government should effectively control the amount of money supplied to the economy in order not to increase inflation which may retard real income growth. It follows that to increase growth, it is essential to implement the set of macroeconomic and sector-specific policies that can considerably relax the binding constraint on the availability of capital. Second, the estimated elasticities for inflation and money growth suggests there high sensitivity to growth. In this sense, we can assume that the model does not exhibit neutrality of money, targeting inflation to desired levels and requisite monetary policy can spur growth.
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