Prethodno priopćenje
https://doi.org/10.32728/ric.2018.44/4
THE DYNAMISM OF EXCHANGE RATE SHOCKS: EVIDENCE FROM NIGERIA
Umar Faruq Quadri
; Nigerian Institute of Social and Economic Research, Oyo Road, Ojoo, Ibadan, Nigeria
Omokhagbo Mike Imafidor
; Adams and Moore, Abia House, Abuja, Nigeria
Sažetak
Purpose. The main objective of this study is to investigate the dynamics of exchange rate shocks in Nigeria.
Methodology. The researcher used Error Correction Model (ECM) with annual time series data covering the period of 36 years; 1981 through 2016 as the estimation technique. The estimated co-integration test shows that the macroeconomic variables in the system do share a long run relationship with the exchange rates in the period under investigation. Accordingly, each variable in the system tends to adjust proportionally to bring in the system back to its long run equilibrium.
Findings and Implications. The estimation result shows that increase in productive output (gross domestic product) leads to depreciation of the exchange rate in the short run but with insignificant effect in the long run. This, hence, implies that the dwindling trend in domestic production has remained one of the major causal factors of the persistent fluctuation in exchange rate in Nigeria. The persistent rise in price level is equally found to lead to appreciation of the exchange rate simply because of over reliance on cheap and more sophisticated foreign goods and materials, in the short run but with insignificant effect in the long run. The domestic interest rate, as reveal by the estimation results, is found to be significantly impacted on the fluctuation of exchange rate in Nigeria.
Limitations. The main limitation of this study is in the area of data availability and model specification. The VAR model as popularized by Sims, (1980) is such that all the variables in the framework are assumed to be endogenous with the exception of exogenous variable. This problem may raise the tendency of for multicollinearity and the statistical insignificance of the regressors co-existing with high overall statistical significance of the regression model (Gujarati, 2005; Brooks, 2008).
Originality. To the best of my knowledge, at the time of conducting this research, many of the studies in Nigeria have employed other methods other than Vector Error Correction Model (VECM). And, we affirm that this work is original and not being considered elsewhere for publishing. Therefore, this study will contribute to existing literature on the dynamics of exchange rate shocks in Nigeria.
Ključne riječi
Long-run equilibrium; Speed of Adjustment; Macroeconomic Fundamentals
Hrčak ID:
216473
URI
Datum izdavanja:
31.1.2019.
Posjeta: 1.317 *