Bayesian analysis of macroeconomic variables on national savings

Abstract

Abstract Multicollinearity brings obstacle to estimation of regression models. A major stumbling block of the most classical method of estimation of regression model is that it is indeterminate in the presence of extreme perfect multicollinearity. This study examined the impact of some macroeconomic variables on National savings of the Nigerian economy. Since majority of these macroeconomic variables are highly correlated, the use of classical methods may be disastrously inappropriate. Hence, the Bayesian analysis with conjugate priors are used to explore the relationship between the national savings and these correlated macroeconomic variables of Nigerian economy in order to effectively handle the problem of multicollinearity. The Bayesian method using the Zellner’s prior handled the problem of multicollinearity efficiently.