Adaptive Expectation, News Impact and Lending Rate Behaviour in Nigeria: Evidence from GARCH Models

Authors

• Innocent Chile Nzeh, University of Agriculture and Environmental sciences Umuagwo Imo StateFollow

Keywords

Asymmetric models, GARCH models, Lending rate, Mean reversion

Abstract

This study investigates how adaptive expectations and news impact shape lending rate behavior in Nigeria within the framework of both symmetric and asymmetric GARCH models. Using monthly data spanning 2006M1 to 2024M5, the paper analyzes the persistence, volatility, and responsiveness of the prime lending rate to positive and negative news shocks. Three error distributions (Normal, Student’s t, and Generalized Error Distribution (GED)) were employed to ensure robust estimation. The findings reveal that, in all models, the recent past value of the prime lending rate has a positive and sig nificant impact on the current value, indicating the presence of adaptive expectations. Additionally, while some models reveal that the prime lending rate exhibits mean reversion, others indicate that the variable are not mean reverting. The influence of news impact on the prime lending rate was shown not to be significant; however, the impact of bad news dominates good news. Consequently, the paper recommends that monetary authorities should consider incorporating adaptive behavior of lending rates into pol icy formulation, such as through improvements in policy signaling, market expectations management, or coordination of monetary and credit policies.

Issue

1

Volume

16

First Page

91

Last Page

112

Recommended Citation

Nzeh, Innocent Chile (2025) "Adaptive Expectation, News Impact and Lending Rate Behaviour in Nigeria: Evidence from GARCH Models," CBN Journal of Applied Statistics (JAS): Vol. 16: No. 1, Article 4.
DOI: https://doi.org/10.33429/Cjas.16125.4/6
Available at: https://dc.cbn.gov.ng/jas/vol16/iss1/4