Policy makers in Nigeria and the entire West African sub-region have been advised to use appropriate econometric modelling and forecasting techniques for policy analysis to understand how the economy works, in order to make short and long-term projections for policy options needed for sustainable development.

The Director General, West African Institute for Financial and Economic Management (WAIFEM), Prof. Akpan Ekpo, gave this advice, during the ‘Regional course on econometric modelling and forecasting for policy analysis’, stressing that in terms of monetary policy, modelling and forecasting are key instruments in formulation/ implementation of policy actions.

He pointed out, “These techniques enable the central banks to have clear understanding of monetary transmission mechanisms in order to steer monetary policy to achieve set objectives. The central banks must therefore be able to assess trends and developments in the domestic economy and external environment as well as the simulation and evaluation of the impact of monetary policy over the medium term.

Econometric modelling also plays a significant role in other areas of socio-economic policy analysis and helps to understand how policy measures modify the behaviour and relations among different economic agents within an economic system.

If, for example, we want to assess the impact of agricultural market reforms at the farm level, we have to estimate farm level production functions in order to derive the impact of price changes on budget, using the appropriate parameters estimated.”

He continued, “The degree of uncertainty is probably greater in our countries than many other parts of the world, because our economies have been the subject of much less rigorous empirical research than economies elsewhere. Clearly, this is not a satisfactory basis for making decisions, which affect the lives of millions of our people.

It is a problem, which affects policy making in many different areas of macro and micro economies, from monetary policy to public finance, to agricultural policy. Econometric analysis can make valuable contribution to the understanding of policy challenges in our economies, because it is the key research tool available for testing of hypotheses against the data, for establishing causal relationships and for the measurement of relationships posited by economic theory.