speed of adjustment of GDP maybe interpreted as that there are other variables

Speed of adjustment of gdp maybe interpreted as that

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speed of adjustment of GDP maybe interpreted as that there are other variables other than the ones specified in the model that affects GDP such as fiscal policy, investment levels, and trade openness among others. The result obtained from the dynamic model indicates that the overall coefficient of determination (R2) shows that 61.28 % of growth rate of GDP is explained by the variables in the equation. As the adjusted (R2) tends to purge the influence of the number of included explanatory variables, the adjusted R 2 of 0.5559044 shows that having removed the influence of the explanatory variables, the dependent variable is still explained by the equation with 55.59 %. Diagnostic checks for the VECMs 5.5 The diagnostic checks are very important to the model because they validate the parameter evaluation outcomes achieved by the estimated model. This arises because, if there is a problem in the residuals from the estimated model; it
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ISSN 2039-2117 (online) ISSN 2039-9340 (print) Mediterranean Journal of Social Sciences MCSER Publishing, Rome-Italy Vol 5 No 15 July 2014 83 is an indication that the model is not efficient such that parameter estimates from the model may be biased. The VAR was tested for serial correlation using the langrage multiplier (LM) test, heteroskedesticity using the White test and normality by employing the Jarque-Bera. Table 6 presents the diagnostic tests results and they all reveal the suitability of the model hence the results from this research can be relied on. Table 6: Diagnostics test results Test Null hypothesis t-statistic Probability Langrage Mulitiplier (LM) No serial correlation 27.79220 0.3175 Jarque- Bera (JB) There is a normal distribution 0.002429 0.9607 White (CH-sq) No conditional heteroskedesticity 196.3438 0.1917 6. Conclusion and Recommendations Monetary policy plays a significant role in the well-being of an economy through its stabilizing role. This paper focuses on investigating the effects of monetary policy on economic growth. Findings of the study show that in South Africa, adjusting the monetary policy through the repo rate and money supply has an insignificant impact on economic growth. Although all variables indicate a positive impact on GDP, only inflation is significant. Rather the government should embark on other measures besides monetary policy to promote economic growth. Such policies include increasing government spending on the productive sectors of the economy so as to promote economic growth, encouraging foreign direct investment (FDI) to boost domestic investments among others. To add on, monetary policies should be used to create a favourable investment climate that attracts both domestic and foreign investments thereby promoting a sustainable economic growth. References Ajisafe, R.A., and Folorunso, B.A. (2002) “The relative effectiveness of fiscal and monetary policy in macroeconomic management in Nigeria” Obafemi Awolowo University, Nigeria The African Economic and Business Review, Vol. 3, No. 1, Spring 2002. Amarasekara, C.A. (2007) “The Impact of Monetary Policy on Economic Growth and Inflation in Sri Lanka”
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