Factors Explaining Exchange Rate Volatility in Nigeria: Theory and Empirical Evidence (original) (raw)
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Determinants of Exchange Rate Volatility in Nigeria: An empirical review
Nigerian Journal of Financial Research, 11(1), 1-9. , 2016
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The study uses a parametric measure to discover the trend and possible causes of exchange rate volatility in Nigeria over the period 1986: 1-- 2009: 4. The study revealed that exchange rate has been volatile in Nigeria given the fact that the standard deviation of exchange rate has been unusually high and unusually low during the period under investigation. The parametric measure of exchange rate further confirmed a high degree of volatility which portrays higher risk to a risk-averse economic agent. The study therefore recommends that the government should always take a cognizance look at the frequent movement in the exchange rate with a view to regulating it because higher risks attached to high degree of volatility may scare off both domestic and foreign investors.
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The naira exchange rate depreciation and volatility is among the vast macroeconomic maladjustments which have unfolded in the Nigerian economy in the recent past. This paper investigates the determinants of real exchange rate volatility in Nigeria from 1981 through 2008. Having obtained the volatility of exchange rate through the GARCH (1,1) techniques, the ECM was used to examine the various determinants of exchange rate volatility in Nigeria, while the co-integration analysis reveals the presence of a long term equilibrium relationship between REXRVOL and its various determinants. Our empirical analysis further shows that openness of the economy, government expenditures, interest rate movements as well as the lagged exchange rate are among the major significant variables that influence REXRVOL during this period. This study recommends that the central monetary authority should institute policies that will minimize the magnitude of exchange rate volatility while the federal government exercises control of viable macroeconomic variables which have direct influence on exchange rate fluctuation.
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The adoption of the International Monetary Fund (IMF) Structural Adjustment Programme (SAP) in 1986 resulted in the transition from fixed exchange rate regime to floating exchange rate regime in Nigeria. Ever since, the exchange rate of naira vis-a-vis the U.S dollar has attained varying rates all through different time horizons. On this basis, this study examines the consistency, persistency, and severity (degree) of volatility in exchange rate of Nigerian currency (naira) vis-a-vis the United State dollar using monthly time series data from 1986 to 2008. The standard Purchasing Power Parity (PPP) model was used to analyze the long-run consistency of the naira exchange rate while the time series properties of the data was examined using the ADF and PP approach, the stationary process, and order of the incorporated series. The ARCH and GARCH models were used to examine the degree or severity of volatility based on the first difference, standard deviation and coefficient of deviation...
Foreign Trade Review, 2024
This article explored the determinants of exchange rate volatility in Nigeria and the effects of exchange rate volatility in influencing macroeconomic performance in Nigeria using quarterly data from Q1 1986 to Q4 2023. This article achieved its objectives using a battery of statistical and econometric techniques including autoregressive conditional heteroscedasticity (ARCH), non-linear generalised ARCH and the novel dynamic autoregressive distributed lag (ARDL) techniques. The findings revealed that ARCH and nonlinear generalised autoregressive conditional heteroscedasticity effects influenced exchange rate volatility. Furthermore, the findings showed that the monetary policy rate, average lending rate, oil prices, government expenditure and financial development are all significant determinants of exchange rate volatility in Nigeria. In addition, the findings revealed that exchange rate volatility had significant effects on Nigeria's macroeconomy. Finally, this article recommended that the monetary authorities institute policies that will ensure a limit within which the exchange rate can fluctuate to better predict economic outcomes and control the general price level in Nigeria. Therefore, the priority lies in ensuring that exchange rates are stable and predictable due to the import-dependence nature of its economy.
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A theoretical proposition on the variables that are causal to exchange rate volatility in Nigeria, this study aims at testing using OLS regression the possible effect of inflation, interest rate and balance of payment on exchange rate volatility. The work seeks to empirically juxtapose the effect of these causal variables on exchange rate volatility in Nigeria for the period 2003 spanning 2023 with emphasis on existing works and literature on exchange rate volatility in Nigeria.
Empirical Modeling of Nigerian Exchange Rate Volatility
In this study, we examined the volatility of Naira/US Dollar and Naira/UK Pound Sterling exchange rates in Nigeria using GARCH model.The data on the monthly exchange rates were collected from Central Bank of Nigeria which spanned through the period 2007-2010, and the analysis of the series was carried out using Econometric software (E-view 7.0) Investigation conducted on the exchange rates showed that volatility on the returns is persistent. The result of normality test indicated that the series residuals are asymmetric The plots on the original series and unit root test on the return series established the nonstationarity status of Nigerian foreign exchange series.The paper therefore recommends that the impact of policies of government on foreign exchange rates should be investigated.
Exchange Rate Volatility and Macroeconomic Performance in Nigeria
IntechOpen, 2022
The study examined the asymmetric relationship between exchange rate volatility and macroeconomic performance in Nigeria covering the period between 1986Q1 and 2019Q4. The Non-linear Generalised Autoregressive Distributive Conditional Heteroscedasticity (GARCH) model was employed. The study was motivated as a result of periodic increase in exchange rate of naira to a dollar and instability of macroeconomic variables in the economy. The presence of Autoregressive Distributive Conditional Heteroscedasticity (ARCH) effect established the use of non-linear GARCH models which showed that volatility was persistent over the period of study. Consequently, the result revealed that exchange rate volatility exhibited a positive relationship with trade balance, industrial output and inflation in the study period. Thus, good news prevailed more over bad news in the foreign exchange market. The study therefore recommended that monetary authorities in Nigeria should regulate exchange rate and macroeconomic variables in order to control the general price level in the economy.
11.Empirical Modeling of Nigerian Exchange Rate Volatility
In this study, we examined the volatility of Naira/US Dollar and Naira/UK Pound Sterling exchange rates in Nigeria using GARCH model.The data on the monthly exchange rates were collected from Central Bank of Nigeria which spanned through the period 2007-2010, and the analysis of the series was carried out using Econometric software (E-view 7.0) Investigation conducted on the exchange rates showed that volatility on the returns is persistent. The result of normality test indicated that the series residuals are asymmetric The plots on the original series and unit root test on the return series established the nonstationarity status of Nigerian foreign exchange series.The paper therefore recommends that the impact of policies of government on foreign exchange rates should be investigated.
Exchange Rate Volatility and Trade Flows: The Nigerian Experience
ISR Publishing Group, 2023
This research is an empirical assessment of exchange rate volatility and trade flows in the Nigerian context. The study adopted the ex-post factor research approach incorporating the unit root test. Secondary data was collected from CBN statistical bulletin. The data were analysed using ARDL analysis technique. The result from the analysis reveals that EXR has a positive but insignificant relationship with BOI over the period. Also, the result shows that the model was a good fit since the f-statistics value of 3.523913 is greater than the p-value of 0.022842 at 5% significance level. Furthermore, EXR has a negative and insignificant relationship with BOT over the period. The result shows that the model was a good fit since the f-statistics value of 12.9852 is greater than the p-value of 0.000001 at 5% significance level. The study concluded that Nigeria at post structural adjustment program period has relaxed the fixed exchange rate regime which has contributed significantly to the high depreciation of the n aira value against foreign currencies especially the US dollar. It recommended that Nigerian government should critically consider moderated fixed exchange rate in order to encourage trade flows and improve balance of payment. Finally, Monetary Policy authorities in Nigeria is recommended to consider all sectors when making policies on naira exchange rate to other foreign currencies.