FORECASTING NIGERIAN ECONOMY USING VECTOR AUTOREGRESSIVE (VAR) MODEL ON SOME SELECTED MACROECONOMIC VARIABLES

This study applies the Vector Autoregressive (VAR) model to forecast the Nigerian economy using selected macroeconomic variables—Gross Domestic Product (GDP) growth rate, inflation rate, exchange rate, and interest rate. The aim is to analyze the dynamic interrelationships among these variables and generate reliable short-term forecasts to support economic policy formulation. Time series data spanning (2000 – 2020) were sourced from the Central Bank of Nigeria (CBN), National Bureau of Statistics (NBS), and World Bank Development Indicators. After conducting stationarity tests using the Augmented Dickey–Fuller (ADF) method and applying optimal lag selection criteria, the VAR model was estimated. Impulse response functions (IRFs) and variance decomposition analyses were performed to examine the transmission of shocks across variables. The results reveal significant interdependencies among the selected macroeconomic indicators. Exchange rate fluctuations and inflation shocks were found to have pronounced effects on GDP growth, while interest rate changes influenced both inflation and exchange rate dynamics. Forecasts generated from the VAR model suggest moderate GDP growth with inflationary pressures and exchange rate volatility in the forecast horizon. The study concludes that VAR modeling offers a robust framework for understanding and predicting macroeconomic trends in Nigeria. It recommends integrating VAR-based forecasts into national economic planning, improving data quality, and updating forecasts periodically to enhance policy effectiveness. Keywords: Vector Autoregressive (VAR) Model, Macroeconomic Forecasting, GDP, Inflation, Exchange Rate, Nigeria.