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Interest Rate Volatility and Economic Growth in Nigeria: New Insight from the Quantile Autoregressive Distributed Lag (QARDL) Model
Open accessAbstract
This is a study on interest rate volatility, a crucial form of volatility which affects local and foreign investments in the real and financial sectors. Whether to prioritize interest rate stability to prevent distortions in the market mechanism or to prioritize other macroeconomic objectives while allowing interest rates to independently react to market forces is a key question for Nigeria’s apex monetary authority. Answering this question is the primary motivation for this research. This paper is an attempt to establish the effect of interest rate volatility on economic growth and further conclude on the suitability of the financial liberalization policy in Nigeria. To reach an evidence-based conclusion, the paper analyzes the relationship between interest rate volatility and economic growth in Nigeria for the period 1981–2020. The QARDL procedure was employed to establish the short-run and long-run quantile-specific impacts of interest rate volatility. As a final step, Granger causality tests are conducted to investigate the predictive powers of the variables. It is discovered from the econometric analysis that interest rate volatility adversely affects the economic performance of Nigeria in both the short run and long run. Consequently, full liberalization is not suitable for the economy. Moreover, we find that the short-run adverse growth effect of interest rate volatility is greater when the economy is already in a relatively weak state, whereas the long-run adverse growth effect is greater when the economy is already in a relatively strong position. The findings sufficiently prove that full interest rate liberalization is not Pareto efficient for Nigeria. Hence, greater supervision of the interest rate corridor system to reduce volatility in the rates and minimize chances of persistent upward or downward bias is advised. Study limitations and directions for further research are also provided.
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“Furthermore, the quantile ARDL model, according to Shahbaz et al. (2018) and Olasehinde-Williams et al. (2024), outperforms linear approaches in numerous respects methodologically.”
From The Velocity of Money and Lessons for Monetary Policy in Nigeria: An Application of the Quantile ARDL Approach (2024) · cites this paper as Olasehinde-Williams et al. (2024)
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“Third, the model determines quantile-varying cointegration coefficients in the near term, a nuance that is frequently disregarded by conventional techniques (Xiao, 2009;Olasehinde-Williams et al., 2024).”
From The Velocity of Money and Lessons for Monetary Policy in Nigeria: An Application of the Quantile ARDL Approach (2024) · cites this paper as Olasehinde-Williams et al., 2024
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References 89 · Cited by 10
Research works printed but not linked: 8
- Abdulhakeem, K. A., & Olasehinde-Williams, G. O. (2014). Governance and growth: Additional evidence from Africa. Political Science Review, 6(1), 108–129.
- Bergo, J. (2003). The role of the interest rate in the economy. Central Bank of Norway BIS Review, 46, 1–9. https://www.bis.org/review/r031104f.pdf
- Chichi, O. A., & Casmir, O. C. (2014). Exchange rate and the economic growth in Nigeria. International Journal of Management Sciences, 2(2), 78–87.
- Coskuner, C., & Olasehinde-Williams, O. (2017). The impact of saving rates on economic growth in an open economy. International Journal of Economic Perspectives, 11(4).
- Delebari, O. R. O., & Didi, E. (2020). GARCH modeling of interest rate in Nigeria from 1997 to 2017. International Journal of Innovative Mathematics, Statistics & Energy Policies, 8(3), 53–68.
- Idris, T. S., & Suleiman, S. (2019). Effect of inflation on economic growth in Nigeria: 1980–2017. Maiduguri Journal of Arts and Social Sciences, 18(2), 33–48.
- McKinnon, R. I. (1973). Money and capital in economic development. Brookings Institution Press.
- Reinhart, C. M. (2012). The return of financial repression. Peterson Institute for International Economics, Financial Stability Review, 16, 37–47.
Metadata
- Authors
- Olasehinde-Williams, G., Omotosho, R., & Bekun, F. V.
- Affiliations
- University of Ilorin (NG)
- ORCID
- Bekun, Festus Victor
- Venue
- Journal of the Knowledge Economy
- Published
- 2024-04-09
- Volume
- 15
- Issue
- 4
- Pages
- 20172-20195
- ISSN
- 1868-7865 (ISSN-L)
- 1868-7873
- OpenAlex
- W4394603127
- Cited by
- 10
- References
- 89
- Citations by year
- 2026: 4 · 2025: 4 · 2024: 2
- FWCI
- 6.72
- Type
- journal article
- Language
- en
- Open access
- hybrid
- doi.org
- Licence
- cc-by
- creativecommons.org/licenses/by/4.0 (tdm)
- creativecommons.org/licenses/by/4.0 (vor)
- Locations
- Journal of the Knowledge Economy (publishedVersion, cc-by)
- RePEc: Research Papers in Economics (submittedVersion)
- Funders
- Istanbul Gelişim University
- Topics
- Social Sciences › Economics, Econometrics and Finance › General Economics, Econometrics and Finance › Monetary Policy and Economic Impact
- Social Sciences › Economics, Econometrics and Finance › Finance › Global Financial Crisis and Policies
- Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Market Dynamics and Volatility
- Keywords
- interest rate volatility, economic growth, financial liberalization, interest rate liberalization, interest rate corridor, monetary policy, Nigeria, short-run and long-run effects, Granger causality
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- CoChat. (2026). Citation check: Interest Rate Volatility and Economic Growth in Nigeria: New Insight from the Quantile Autoregressive Distributed Lag (QARDL) Model. https://app.cochat.ai/papers/10.1007/s13132-024-01924-x
- The paper
- Olasehinde-Williams, G., Omotosho, R., & Bekun, F. V. (2024). Interest Rate Volatility and Economic Growth in Nigeria: New Insight from the Quantile Autoregressive Distributed Lag (QARDL) Model. Journal of the Knowledge Economy. https://doi.org/10.1007/s13132-024-01924-x
Data sources
Bibliographic data: Semantic Scholar, OpenAlex, Crossref.
Contains information from the Semantic Scholar Academic Graph Datasets, made available under the ODC Attribution License (ODC-BY 1.0).
Semantic Scholar’s data is described in: Kinney, R., et al. (2023). The Semantic Scholar Open Data Platform. arXiv:2301.10140.
