Abstract
The paper determines empirically the interactive influence of external reserves and selected key macroeconomic variables in Nigeria using an autoregressive distributive lag (ARDL) model, cointegration and error correction model anticipated by Pesaran, Shin and Smith (2001) with quarterly data between 2000 and 2018 sourced from Central Bank statistics portal on data warehouse pro platform at https://cbnstatistics.datawarehousepro.com. The paper applied the Augmented Dickey-Fuller (ADF) unit root in testing variables stationarity. The Cumulative sum (CUSUM) as well as the Cumulative sum of square (CUSUMSQ) display some recursive outstanding schemes of the external reserve function that remain within the 5% critical positions, and therefore gave an indication of steady external reserve purpose for Nigeria during the study period. The key variables trade openness that captured the total imports and exports by way of proportion of gross domestic product (GDP), exchange rate, direct investment, portfolio investment, oil price, consumer price index, interest rates have correct signs and the ARDL regression analysis indicates that the descriptive variables elucidate and accounted for 99% disparities in external reserves model. The bounds cointegration test exhibited that the variables are cointegrated. The paper demonstrated several empirical supports for the theoretical implications. Precisely, the log of direct investment, portfolio investment, trade openness and interest rate have positive effect, statistically significant and contributes to the external reserves position in Nigeria on the short- run. Jel. Classification Numbers: F21, F32, F34 DOI: 10.7176/JESD/11-10-08 Publication date: May 31 st 2020
Highlights
IntroductionEmerging economies and the world at large, especially the oil exporting nations, are engaged in the accumulation of reserve
External reserves, called foreign reserves, consists of outward capital which are willingly accessible to and regulated by Central Banks to assist balance of payments funding requirements, participation in foreign exchange souks to influence the money rates, as well as other connected objectives like upholding assurance in the exchange and the finance, and helping as a foundation for lending (IMF, 2009).Emerging economies and the world at large, especially the oil exporting nations, are engaged in the accumulation of reserve
5.0 Concluding Remarks This study has examined the movements and scientific connections of reserve with some macroeconomic variables, namely GDP, exchange rate, consumer price index, oil price, trade openness, level of capital inflow and interest rate in Nigeria
Summary
Emerging economies and the world at large, especially the oil exporting nations, are engaged in the accumulation of reserve. This is as a result of the knowledge of enormous investment reversals in Asian economies in the 1990’s (Usman and Ibrahim, 2010) that has devastating huge effects on their current accounts. Even with the cancellation of conversion of currencies to gold, some currencies such as USD, Pounds sterling, Swiss Franc and Japanese yen still serve as nation’s reserves currency with the USD contributing the dominant portion in the global reserve as a result of penetration and liquidity in US market for treasury and agency securities (Oputa, 2002)
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