Abstract
We analyzed the effect of volatility in the Naira-Dollar exchange rate on the volume of imports to and exports from Nigeria between 1990 and 2019. Data for all variables, except volatility, were sourced from the Central Bank of Nigeria (CBN), the National Bureau of Statistics (NBS), and the International Financial Statistics. The volatility of the naira exchange rate was calculated from the model. The study employed both the autoregressive distributed lagged (ARDL) and exponential generalized autoregressive conditional heteroscedasticity (EGARCH) models to test for the short and long-run relationships between changes in the Naira-Dollar exchange rate and the volume of imports and exports. Volatility in the Naira-Dollar exchange rate was found to be related to the volume of imports to and exports from Nigeria in the long run with no short-run effects because of the pass-through effect to domestic inflation. The study recommends that government should sustain efforts at promoting exports and reducing imports to improve the trade balance. The study brings into perspective another way of looking at the long-run relationship between the Naira-Dollar exchange rate and Nigeria's trade balance.Keywords: Foreign exchange rate, foreign exchange market, Imports, Exports, The balance of trade, Nigeria.JEL Classifications: F14, F31, 024.DOI: https://doi.org/10.32479/ijefi.11799
Highlights
Severe fluctuations in the foreign exchange market of countries have caused disruptive tendencies on activities in the real economy (Obstfeld and Rogoff, 1998), especially on the balance sheet of banks with foreign currency exposures
Is the ARCH component of the summary statistics followed by correlation analysis of the relationship among the variables, especially the correlation between the balance of trade (BOT) and real effective exchange α0 is the constant, and ѱ1 is the coefficient of asymmetry, ѱ2 is the coefficient of persistence, while Υ is the leverage coefficient showing the leverage effect. where negative returns are rate (REER) in Nigeria
The study investigated the effect of exchange rate volatility on exports and imports in Nigeria during the period 1990 to 2020
Summary
Severe fluctuations in the foreign exchange market of countries have caused disruptive tendencies on activities in the real economy (Obstfeld and Rogoff, 1998), especially on the balance sheet of banks with foreign currency exposures. Such disruptive tendencies have led to volatility in the exchange rate with corresponding repercussions on the balance of trade. The response of most of these countries including Nigeria is to adopt policies that would both reduce the exchange rate volatility as well as achieve some form of internal and external balance in the macroeconomy. Section four presents the empirical analysis and results and the discussion of policy implication, while section five concludes with key findings and recommendations
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