Detection and correction of heteroscedasticity and its effect on modelling of Nigerian economic data
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Heteroscedasticity, GDP, Inflation Rate,, Exchange rate, OLS##article.abstract##
The study centred on detection and correction of heteroscedasticity and its effect on modelling of economic data. Data were collected from CBN Statistical bulletin on five economic variables namely; Gross Domestic Product (GDP), Inflation Rate, Exchange Rate (Exch_rate), Balance of Payment and Government Debt from 1987 - 2017. The data was analysed using the Ordinary Least Square method and variance stability techniques was used to correct heteroscedasticity using log transformation of the dependent variable while Breusch-Pagan, White and HarveyGodfrey tests were used to detect the presence of heteroscedasticity in the variables at 5% level of significance with the aid of E-views 9. The regression model fitted to the data set was GDP = 37242.63 - 256.7745 Inflr – 40.196 Exchr + 252.364 BoP + 3.147 GovD and it showed that only inflation rate and Government debt were discovered to be significant predictors (p < 0.05) while and heteroscedasticity was detected. Result showed that after log transforming the variables, heteroscedasticity was eliminated as shown by Breusch-Pagan, White and HarveyGodfrey test respectively. It is concluded therefore that transforming economic data helps correct and eliminate detected heteroscedasticity in modelled economic variables.
