Abstract
The study examined a comparative analysis of monetary policy shocks and exchange rate fluctuations based on evidence from the two largest economies in Africa (Nigeria and South Africa) – from 1985 to 2015. Data were derived from various sources which include the National Bureau of Statistics, the Central Banks reports and the World Bank database. Vector Autoregressive (VAR) Analysis was used as the estimation technique. The results indicated that the foreign interest rate in South Africa had higher variations in the short-run. While in the long-run, foreign interest rate has higher percentage variations to exchange rate. In Nigeria the world oil price has the higher influence on exchange rate both in the short-run and longrun periods. Based on these results, the study then recommended that the monetary authorities and policymakers in both countries encourage external currency inflows into the economy.
Highlights
There is general consensus that domestic price fluctuation undermines the role of money as a store of value, and frustrates investments and growth
The exchange rate is seen as an essential macroeconomic variable which helps with the formulation of economic policies and reforming programs in which these policies accelerate the achievement of set macroeconomic goals
The result in figure 1 revealed the response of exchange rate to the shock coming from an interest rate as an internal monetary variable in Nigeria is positive from the beginning and is closer to zero in quarter two, after which it becomes negative and statistically insignificant
Summary
There is general consensus that domestic price fluctuation undermines the role of money as a store of value, and frustrates investments and growth. Simeon-Oke and Aribisala (2010)viewed that exchange rate is the price of one currency in terms of another currency. This rate is an exceptional price which government is interested in. The exchange rate is seen as an essential macroeconomic variable which helps with the formulation of economic policies and reforming programs in which these policies accelerate the achievement of set macroeconomic goals. These goals include achieving and uploading price stability, the balance of payment equilibrium, full employment, even distribution of income, economic growth, and development
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