Econometric Analysis of Macroeconomic Objective: Application of ARCH and GARCH Model

OKEOWO Idowu Adeniyi

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Volume 1 | Issue 1 | Year 2024 | Article Id: CE-V1I1P101

Econometric Analysis of Macroeconomic Objective: Application of ARCH and GARCH Model

OKEOWO Idowu Adeniyi

Received	Revised	Accepted	Published
12 Aug 2024	10 Sep 2024	05 Oct 2024	21 Oct 2024

Citation

OKEOWO Idowu Adeniyi. “Econometric Analysis of Macroeconomic Objective: Application of ARCH and GARCH Model.” DS Reviews of Commerce and Economics, vol. 1, no. 1, pp. 1-8, 2024.

Abstract

For macroeconomic objectives to be achieved and sustained, these objectives must be modeled together rather than isolation modeling. The main objective of this paper is to model the inflation rate, unemployment rate, exchange rate and growth rate simultaneously. The study used a time series analysis method from 1987-2022 to model macroeconomic objectives. Having observed the Autoregressive Conditional Heteroscedasticity (ARCH) effect in the data properties, the Generalised Linear Model (GLM) model was used in its estimation. All the variables contain unit roots at levels except the inflation rate. 16% increase in the inflation rate and a 7% increase in the unemployment rate bring about a 1% change in GDP. Reduction in unemployment and income inequality, encouraging small enterprises and development of rural areas are proffered as policy options. As inflation rate increases by 16%, the economy grows by 1%. In order to check the increasing rate of inflation, reduction in unnecessary government expenditure, rational wage policy, increase in production and effective price control mechanisms were equally recommended as alternative policy options. The model shows that the exchange rate depreciates as economic growth increases. To solve the problem of exchange rate misalignment, expenditure-reducing policy, import substitution, export promotion and expenditure-switching policy were recommended as viable macroeconomic policy targets.

Keywords

Macroeconomic, Unemployment, Inflation, Exchange rate, Heteroscedasticity.

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