MONETARY POLICY SHOCKS AND EXCHANGE RATE VOLATILITY IN NIGERIA
Journal Title: Asian Economic and Financial Review - Year 2014, Vol 4, Issue 4
Abstract
This paper analysed the effects of monetary policy shocks using changes in various monetary policy instruments on exchange rate volatility in Nigeria. This paper investigates the relationship between exchange rate volatility and monetary policy shocks in Nigeria. The paper applies the classical ordinary least square to examine the short-run monetary policy determinants of exchange rate volatility in Nigeria. Also, the error correction mechanism model was estimated after establishing the long-run interaction among set of incorporated variables using the Engle-Granger approach. The results from the paper show that both real and nominal exchange rates in Nigeria have been unstable during the period under review. In the short, the variation in the monetary policy variable explains the movement/behaviour of exchange rate through a self-correcting mechanism process with little or no intervention from the monetary authority (CBN). In addition, the results from the causality tests between the exchange rate volatility and monetary policy variables showed that there is a causal link between the past values of monetary policy variables and the exchange rate. This is obvious in the case of the past value of the interest rates. Such that, a change in the level of previous values of monetary policy variables causes exchange rate volatility. Finally, the paper reiterated and concluded that inflation rate, reserves, interest rate and money supply depreciate and cause volatility in nominal exchange rate which further reinforce other findings that monetary policy is crucial to exchange rate management in Nigeria.
Authors and Affiliations
Babatunde Wasiu Adeoye| Department of Economics, University of Lagos, Nigeria, Olufemi Muibi Saibu| Department of Economics and Econometrics, University of Johannesburg, South Africa
Keywords
Related Articles
- EP ID EP2027
- DOI -
- Views 405
- Downloads 21
AN EMPIRICAL VALIDATION OF FAMA AND FRENCH THREE-FACTOR MODEL (1992, A) ON SOME US INDICES
The study of mean returns of American stocks showed a poor β coefficient of the Sharpe (1964) and Lintner (1965) capital asset pricing model or the consumption coefficient of Breeden (1979); Reinganum (1981) and Breeden...
TRADE-GROWTH NEXUS IN DEVELOPING AND DEVELOPED COUNTRIES: AN APPLICATION OF EXTREME BOUNDS ANALYSIS
In this study, we investigated the relationship between foreign trade and economic growth in the developing and developed countries by using extreme bounds analysis approach. For this we used unbalanced panel data of 103...
ASIA’S RESERVE ACCUMULATION: PART OF A NEW PARADIGM
So far, various contributions have failed to explain Asia?s fat foreign currency reserve accumulation. In this paper, I analyze reserve holding decisions in a wider social, political, and economic context. Using Weber?s...
INCORPORATING THE CREDIT RANKING MEASURE TO EVALUATE THE OPERATING EFFICIENCY OF FINANCIAL HOLDING COMPANIES IN TAIWAN
One hears that the credit ranking score has increased technical efficiency in financial holding companies, when a data envelopment analysis (DEA) is employed. Our empirical results show that the credit ranking scores wil...
THE DETERMINANTS OF FDI IN TUNISIA: AN EMPIRICAL STUDY THROUGH A GRAVITY MODEL
In order to analyze the determinants of FDI, several empirical studies have been done by applying different econometric models. The purpose of this article is to identify the determinants of FDI in Tunisia through a grav...