Exchange Rate Volatility In Nigeria Research Articles

Oil Price and Exchange Rate Volatility in Nigeria

Nigeria being a mono-product economy, where the main export commodity is crude oil, changes in oil prices has implications for the Nigerian economy and, in particular, exchange rate movements. The latter is mostly important due to the double dilemma of being an oil exporting and oil-importing country, a situation that emerged in the last decade. The study examined the effects of oil price, external reserves and interest rate on exchange rate volatility in Nigeria using annual data covering the period 1970 to 2011. The theoretical framework of this study is based on Generalized Autoregressive Conditional Heteroskedasity modeled by Tim Bolerslev (1986) and Exponential General Autoregressive Conditional heteroskedastic modeled by Daniel Nelson (1991). These models were used to estimate the relationship between oil price changes and exchange rate. Relevant descriptive and econometric analyses were employed. The econometric tests adopted include the unit root tests, Johansen co-integration technique and the Vector Error Correction Model (VECM); the time series property examined shows that all the variables were stationary at first difference. The long run relationship among the variables was determined using the Johansen Co-integration technique while the vector correction mechanism was used to examine the speed of adjustment of the variables from the short run dynamics to the long run. It was observed that a proportionate change in oil price leads to a more than proportionate change in exchange rate volatility in Nigeria; which implies that exchange rate is susceptible to changes in oil price. The study therefore recommend that the Nigeria government should diversify from the Oil sector to other sectors of the economy so that Crude oil will no longer be the mainstay of the economy and frequent changes in crude oil price will not influence exchange rate volatility significantly in Nigeria.

Exchange Rate Volatility in Nigeria: Evidence from a Parametric Measure

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.

The Determinants of Real Exchange Rate Volatility in Nigeria

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. DOI: 10.5901/ajis.2013.2n1p459

Cointegration between Exchange Rate Volatility and Key Macroeconomic Fundamentals: Evidence from Nigeria

The study modelled the short run and long run impact of some macroeconomic fundamentals on the exchange rate volatility in Nigeria. Unit root test conducted on the specified time series showed that all series were integrated of order one. The short-run and long-run elasticities of exchange rate volatility with respect to some key macro-economic fundamentals were determined using the techniques of co-integration and error correction model estimation. The empirical results revealed that the coefficients of the total import, industrial capacity utilization rate, lending rate of commercial Banks, foreign private investment and liberalization policy period are significant in the long run. Whereas the coefficients of external reserves, inflation rate, interest rate, foreign private investment, total import and industrial capacity utilization rate were significant in the short run. The result advocated for appropriate short and long term policy packages that should focused on stabilization of the identified significant shifters of exchange rate volatility in the Nigeria’s economy. Harmonization of transactions in the various foreign exchange markets in Nigeria should be a priority objective in the current exchange rate policy.

Employment Effect of Exchange Rate Volatility in Nigeria's Manufacturing Sector

Employment Effect of Exchange Rate Volatility in Nigeria's Manufacturing Sector

Between dollarization and exchange rate volatility: Nigeria's portfolio diversification option

This paper investigates the relationship between nominal exchange rate volatility and dollarization in Nigeria by applying Granger causality test for the period 1986 (1)–2003 (4). Previous theoretical and empirical studies on this issue provided conflicting results. The empirical results of Granger causality test support a bi-directional relationship. However, causality from dollarization to exchange rate volatility appears stronger and dominates. This suggests that policies that aim to reduce exchange rate volatility in Nigeria must include measures that specifically address the issue of dollarization. An important factor in this case is the supply of sufficient domestic currency assets that would permit portfolio diversification and capable of dousing negative expectations about future inflation in the country.