Naira Exchange Rate Research Articles

Value-at-risk modeling of naira exchange rates

The naira exchange rate has experienced extreme volatility, and the use of derivatives to control interest rates and currency risks has grown quickly. These developments have made risk management research necessary. To this effect, this paper investigated the optimal volatility model that offers the best VaR forecasts and minimizes expected loss in the Naira exchange rate. The data was collected from FX time and consisted of the Euro to Naira exchange and the daily closing rate of the US dollar to Naira exchange rate from 24/10/2016 to 15/06/2018. These data were estimated using different symmetric and asymmetric GARCH models. The finding shows that there is less volatility in the USD to Naira exchange rate compared to the Euro to Naira exchange rate. The study shows that SPLINE- GJR under skewed student t distribution is the optimal model for the Euro to Naira exchange rate while GARCH is the optimal model for the US dollar to Naira exchange rate. This study suggests that model risk assessments be given careful consideration by regulators, banks, and other stakeholders and integrated into the process of operational and regulatory design.

Modeling Long Memory Volatilities of Nigeria Selected Macro Economic Variables with Arfima and Arfima Figarch

The research delved into analysing the stochastic characteristics of Nigeria's Real GDP, the exchange rate of the Naira to US Dollar, and the inflation rate employing Autoregressive fractionally integrated moving average (ARFIMA) and the Autoregressive Fractionally Integrated Moving Average Fractionally Integrated Generalized Autoregressive Conditional Heteroskedasticity (FIGARCH) modelling approach. The ability of the hybrid formation of ARFIMA-FIGARCH model with Nigeria macroeconomic variables in modeling the periodicity of long memory volatilities was examined. ARIMA GARCH method of modeling was also employed in analyzing the volatilities of Nigeria selected macroeconomic variables to enrich the study. The efficiency of ARFIMA, ARFIMA FIGARCH and ARIMA GARCH models were evaluated with the forecast evaluation measurements. Results revealed that ARFIMA FIGARCH and ARIMA GARCH models are more adequate in modeling the Inflation rate and the exchange rate while ARFIMA present more adequacies in modeling the RGDP. This result revealed evidence of high volatilities in Nigeria Inflation and the exchange rate of Naira to US dollar

Energy price reforms, exchange rate devaluation and macroeconomic instability: Evidence from Bayesian VAR identified with sign‐and‐zero restrictions

AbstractThis study sets out to examine the effects of the interaction of subsidy removal on premium motor spirit (PMS) and exchange rate devaluation on macroeconomic instability in Nigeria. In this regard, this study adopted the Bayesian vector autoregressive model (BVAR) identified with sign‐and‐zero restrictions for annual data between 1985 and 2022. The empirical results reveal that both the removal of subsidies on PMS and the devaluation of the naira exchange rate significantly undermine real gross domestic product (GDP) growth and raise inflationary pressures in Nigeria. One important implication of this finding is that the ongoing subsidy reforms in the energy sector and associated devaluation of the naira exchange rate raise the risk of stagflation in Nigeria. Secondly, the simulation shows that simultaneous subsidy removal on PMS and exchange rate devaluation can trigger macroeconomic instability. This finding implies that stabilising PMS price and the exchange rate is key to achieving macroeconomic stability in Nigeria. Thus, this study recommends that Nigeria should be cautious and act quickly to cushion the price of PMS from the vagaries of foreign exchange market fluctuations to improve macroeconomic stability in the country.

A Time Series Study of Financial Sector Development and Original Sin in Nigeria

This study examined financial sector development and original sin in Nigeria financial market. Time series data was sourced from Central Bank of Nigeria Statistical Bulletin from 1990-2023. Original sin measured by Nigeria external debt per exchange rate, Capital market development as market capitalization to gross domestic product, Foreign exchange market as variation in naira exchange rate per US Dollar, banking sector development as percentage total bank assets to gross domestic product, money market development as insurance total assets to gross domestic product, Money market development as value of money market instrument to gross domestic product. The study employed descriptive statistics and multiple regression models to estimate the relationship that exists between the dependent and independent variables. The null Hypotheses (H0) were tested at 0.05 level of significance, Ordinary Least Square (OLS), Augmented Dickey Fuller Test, Johansen Co-integration test, normalized co-integrating equations and parsimonious vector error correction model were used to conduct the investigations and analysis. The study found that 57.0% variation on original sin can be traced and explained by variation on the independent variables as formulated in the regression model. However, the F-Statistics and the F-probability justifies that the model is significant and adequate in explaining variation on the dependent variable. The β coefficient shows that capital market development have negative effect on original sin, foreign exchange market have positive effect on original sin, banking sector development have negative effect on original sin, insurance sector development and money market development have positive effect on original sin. From the findings, the study concludes that the independent variables determine positively and negatively original sin in Nigeria. We recommend that the need for policies to deepen the capital market as this can cushion the effect of the negative effect of external borrowing and domiciled in Nigeria currency rather than international currency. There should be institutionalized policies to enhance the value of the naira against other international currencies as this can reduce the pressure of exchange rate variation in international debt and international monetary environment. Public expenditure should be directed to the productive sector of the economy as this can enhance the productive capacity of the economy and reduce the negative effect on balance of payment and other macroeconomic variables. Policies should be advanced to reduce external borrowings; this can reduce the debt burden and reduce the incidence of original sin in the financial market.

Modeling Exchange Rate of Naira to Euro with the APLSTAR-GARCH model

Application of the asymmetric power logistic smooth transition autoregressive (APLSTAR) model proposed by [1] to naira/Euro exchange rate spanning from January, 2006 to April, 2021, which is a nonlinear macroeconomic time series was considered. The APLSTAR model was justifiably fitted to the series and the fit of the APLSTAR model compared with the fits of the competing models revealed that the APLSTAR model fits the data exchange rate of naira to Euro better than the other asymmetric STAR models. Lagrange Multiplier tests for autoregressive conditional heteroscedastic (ARCH) effects were carried out and there was no substantial evidence to reject the presence of ARCH effects in the set of residuals used. Hence, we compared hybrid smooth transition autoregressive-generalized ARCH (STAR-GARCH) models using model evaluation criteria. On balance, the APLSTAR-GARCH (0, 1) model outperforms the other models under consideration.

Commodity Price Shock and Economic Performance: An Empirical Evidence for Nigeria

Interconnected economies in the world commodity market may cause external shocks that slow indigenous countries' economic growth and development. Nigeria is a commodity-dependent country, hence, commodity price shocks have harmed its institutional and fiscal framework for economic growth, despite efforts to save the economy. It is crucial to assess the effects of local and external commodity price volatility shocks on emerging nations' growth since they plunge millions into abject poverty. It is in this context, this study examines commodity price shock and economic performance with an empirical evidence for Nigeria. This study employs Multivariate Generalized Autoregressive Conditional Heteroscedasticity (MGARCH) to capture both gradual and unexpected changes in commodity price shock in Nigeria from 1980Q1 – 2021Q1. The results showed positive volatility shock effect on each variable caused by its past innovations while parameters of the independent variables indicated innovations of shock effects on economic performance. Also exports of other non-oil commodities can reduce dependence of real exchange rate on world commodity prices by having more diversified exports. The study recommends for diversification towards agricultural production to stabilize the real exchange rate of Naira from world commodity price shocks. Finally, Nigeria can protect her competitiveness from fluctuations in world commodity prices by being more opened to external trade.

Oil Price Fluctuation And Exchange Rate In Nigeria: Is There A Volatility Transmission Effect

Over the period 1980-2022, we examined the transmission effect of oil prices on Nigeria's exchange rate. E-GARCH (Exponential GARCH) model is employed in this study. We used Augmented Dickey Fuller to determine a unit root, integrating exchange rates, crude oil prices, external reserves, GDP, inflation, and interest rates to one I(1) and zero I(0). We used Johansen Co-integration to determine long-term relationships. Interest rates, inflation, and crude oil prices all correlated positively with each other. A statistically insignificant result is shown by the variance equation, indicating there is no correlation between crude oil prices and exchange rates. The Nigerian exchange rate is not affected by volatility transmission or leverage due to fluctuations in crude oil prices. According to the study, governments should take monetary policy measures to stabilize exchange rates during unpredictable oil price fluctuations. It is necessary to adjust the naira exchange rate when oil prices fluctuate.

Time Series Intervention Modelling Based on ESM and ARIMA Models: Daily Pakistan Rupee/Nigerian Naira Exchange Rate

The battered Nigerian economy has slipped into its second economic recession in five years due to the fallout of the coronavirus pandemic. And this has had a remarkable effect on the value of the Nigerian Naira that are exchanged for a unit of many other currencies of the world. Intervention modelling is used to assess the impact of this external event on the Pakistan Rupee to the Nigerian Naira exchange rates. The dataset for this study is the daily Nigerian Naira exchange rate with respect to the Pakistan Rupee from January–December 2020. The intervention point is marked on April 10, 2020, as a pulse function for the PKR/NGN series. Results revealed that the economic recession due to the fallout of the coronavirus pandemic increased the value of the Nigerian Naira by 3.38% against the Pakistan Rupee, which 1PKR is exchanged for 2.2042NGN compared to the periods before and after the intervention occurred. The intervention was felt at the point of intervention itself but the effect dies immediately after the intervention. Hence, the intervention response is described as an abrupt start and abrupt decay.

Systemic Risk and Stock Market Return: A Vector Error Correction Estimate from Nigeria

This study examined the effect of systemic risk on the stock market return in Nigeria. Time series data were sourced from Central Bank of Nigeria statistical Bulletin from 1990-2021. Stock market return was modeled as the function of exchange rate risk, commodity price risk, equity price risk and interest rate risk. Multiple regressions were formulated to examine the effect of systemic risk on stock market return. Ordinary least square methods were adopted as data analysis methods. R-square, adjusted R-square, T-statistic, regression coefficient, f-statistic and Durbin Watson were used to examine the effect of systemic risk on stock return. The study found that systemic risk explained 62.8 percent variation in stock market return over the time covered in this study. The study found that exchange rate risk has negative and no significant effect, commodity price risk have positive and significant effect, interest rate have positive and no significant effect while equity price risk have positive and significant effect on stock market return. From the regression summary, the study concludes that systemic risk has significant effect on stock market return in Nigeria. The study recommends that systemic risk management should be considered as part of strategic plans which need to be reviewed on a more frequent basis and macroeconomics policies should directed towards stabilizing Nigerian exchange rate to avoid depreciating naira exchange rate against key currencies that exposes the firms to exchange rate risk.

Systemic Risk and Capital Budgeting Decisions of Quoted Industrial Goods Manufacturing Firms in Nigeria

The purpose of this study was to examine the effect of systemic risk on capital budgeting decisions of quoted industrial goods manufacturing firms in Nigeria. Panel data were collected from annual reports of 15 industrial goods manufacturing firms. Capital budgeting was modeled as the function of exchange rate risk, interest rate risk and consumer price risk. Ordinary least square method of multiple regressions was used as data analysis method. After cross examination of the models, the fixed model was adopted. The regression summary produced adjusted R 2 from the fixed effect regression model implied that 69.9 percent variation in capital budgeting decision of the quoted manufacturing firms were attributed to changes in systemic risk while the model is statistically significant by the value of F-statistics and F-probability. The Durbin Watson statistics implies absence of serial autocorrelation. The study found that exchange rate risk is negative and significant; interest rate risk is positive and significant while consumer price risk is positive but not significant effect on capital budgeting. from the findings, it recommend that There is need for management of the manufacturing firms to formulate strategies of managing systemic risk and the implementation should not just be formulated but strategic and tactical measures should be put in place to absorb, retain and transfer systemic risk and there should be policy to fully deregulate interest rate in the financial market. Systemic risk management should be considered as part of strategic plans which need to be reviewed on a more frequent basis and macroeconomics policies should directed towards stabilizing Nigerian exchange rate to avoid depreciating naira exchange rate against key currencies that exposes t he firms to exchange rate risk

Exchange Rate Regimes and the Performance of the Real Sector in Nigeria

Within the international market system, the exchange rate has been a critical criterion for determining the relative power of a domestic currency in comparison to another. Essentially, Nigerian exchange rate policy has been aimed toward safeguarding the Naira against continual loss of its privileged position in the global monetary system from time to time. As a result, different exchange rate regimes have been adopted. Therefore, Exchange Rate Regimes and the Performance of the Real Sector in Nigeria was studied from 1970-2019.The output of real sector variables (agricultural sub-sector, industrial sub-sector, and services sub-sector) was examined using the Auto Regressive Distributed Lag Model technique. Nominal exchange rate and dummy variables of Regulated and Deregulated regimes were used as independent variables, while, controlling for net exports, inflation, bank credit to the private sector, foreign direct investment, external reserve. The results of the estimation revealed that regulated regime periods had a negative but insignificant association with real sector variables, while deregulated regime periods had a positive but insignificant relationship. By implication, the perpetual loss in value of Naira exchange rate remain a source of concern hence; the need to formulate a reliable exchange rate policy that can stand the test of time in Nigeria. In addition, the regulated exchange rate regime was loosely fixed with temporal government intervention in the foreign exchange market. Such monetary interventions have not yielded the desired results. The study recommended that a stronger exchange rate policy be developed that achieves the needs of primary exchange rate users, as well as that more bank credits be extended to the real and export sectors in order to produce high-quality outputs for export rather than relying solely on monetary intervention strategies by the Nigerian Central Bank.

Impact of Exchange Rate Volatility on Export in Nigeria: 2008 – 2021

This study examined the impact of exchange rate volatility on export in Nigeria. The specific objectives of the study were to evaluate the individual impacts of parallel market-, interbank, real and nominal-exchange rate volatilities on Nigeria’s export. The study employed the ARDL-Error Correction Model and Bound Test using secondary data sourced from the Statistics Database of the Central Bank of Nigeria. Bounds test results for each of the four models, showed long-run relationship among the variables. The results showed that in the long-run, all the exchange rate volatility measures showed negative sign as expected but only the real effective exchange rate volatility was statistically significant in the long run. In the short-run, the average impact of exchange rate volatility was negative in all the four models as expected. However, volatility in real effective exchange rate and nominal effective exchange rate were statistically significant. Finally, if the Nigeria’s export deviates from its long-run path due to short-run perturbations, the tendency for it to return to long-run equilibrium from the four models lied between 25% and 39%. Based on these results, this study recommended that efforts to improve Nigeria’s trade with other countries should consider stabilizing the Naira exchange rate. The Central Bank of Nigeria should shore up reserve accretion as well as diversify the country’s export basket and source for new export destinations.

Cardiovascular Health Implications of Worsening Economic Indices in Nigeria: A Narrative Review

Poor economic indices are implicated in adverse health outcomes. Cardiovascular diseases are the leading cause of death globally with more impact in low- and middle-income countries. Despite some documented associations between worsening economic indices and cardiovascular health, there is however knowledge gap on this topic in this environment. We conducted a narrative review to provide an overview of the impact of dwindling economy and cardiovascular health in Nigeria. A comprehensive search of electronic databases including PubMed, Scopus, and Google Scholar was conducted. The search terms were cardiovascular health, economic indices, and Nigeria. Inclusion criteria were studies published in English language between 2010 and 2021. There is limited knowledge on the association between worsening economic indices and cardiovascular health in Nigeria. The Nigerian government’s spending on health care was less than the recommended 15% of the budget. There was a decline in gross domestic product from 5.31% in 2011 to 3.65% in 2021 and a rise in the inflation rate and unemployment rate from 10.84% and 3.77% to 16.95% and 9.79%, respectively, over this period. The prevalence of hypertension, diabetes mellitus, and dyslipidemia, which are the leading causes of cardiovascular morbidity, increased in the period of study. The exchange rate of naira to other global currencies worsened with attendant rise in the cost of health-care and cardiovascular medications. There is a huge knowledge gap on the impact of worsening economic indices and cardiovascular health. However, the existing evidence showed that the Nigerian government’s spending on health is low and poor economic indices may be related to the worsening cardiovascular health in Nigeria. There is a need for more research to assess the impact of these indices on cardiovascular health.

IMPACT OF INTERNATIONAL TRADE ON ECONOMIC GROWTH: THE GRANGER CAUSALITY TEST APPROACH

The study analyzes the impact of international trade on economic growth in Nigeria. Using Granger Causality test it indicates that trade balance does not Granger cause real gross domestic product at 5% level of significance. It also indicates that the degree of trade openness does not Granger cause real gross domestic product at 5% level of significance. The regression result shows that trade is not statistically significant to economic growth. Also, the result shows that trade openness is not statistically significant to economic growth. It is recommended that there is need for effective foreign exchange management capable of ensuring optimal productivity in the critical sectors of the economy. This can be achieved by diversification of the economy away from oil with a view to expanding export of non-oil goods and services to strengthen naira exchange rate under the managed float regime.

FOREIGN DIRECT INVESTMENT AND INDUSTRIAL SECTOR GROWTH IN NIGERIA: AUTOREGRESSIVE DISTRIBUTION LAG (ARDL) APPROACH

This paper assessed the relationship between foreign direct investment and industrial sector growth in Nigeria between 1981 and 2020. The study employed time series secondary data On industrial sector output, foreign direct investment, trade openness (measured by trade percentage of gross domestic product), capital formation, and nominal exchange rate were obtained from the statistical bulletin of the Central Bank of Nigeria (CBN),2021 version. The data were analyzed using Ordinary Least Square, Auto Regressive Distributed Lag (ARDL) model and ADF unit root test. The ADF test revealed that industrial sector output and trade openness are stationary at level I(0). However, foreign direct investment, exchange rate and capital formation are not stationary but have no unit root at first difference I (1) at 1%, 5% and 10% significant value. The ARDL results confirmed the existence of long run and short run relationship between foreign direct investment and industrial sector growth in Nigeria. The study concludes that FDI has a noticeable connection with industrial sector in the short run and long run. The study recommends that government should take proper steps to create enabling business forum for FDI and these steps should be institutionalized and free of adverse political influence. The government should also remove red-tapes in business registrations, terminating unfair quota systems, providing visas speedily on merit, among others. Similarly, effective policies should be implemented to stabilize the Naira exchange rate in relation to other major currencies to boost investors’ confidence to invest in the country.

Forecasting the Nigeria Foreign Exchange, Leveraging on the Arima Model

This study seeks to build an appropriate model that will be used to forecast the US Dollar to the Nigerian Naira Exchange Rate. The exchange rate market is known to be unstable; this is due to the constant changes in the economic or market environment of countries. Therefore, forecasting the exchange rate accurately is very important in the economic decisions of countries and the organized private sector. The Autoregressive Integrated Moving Average (ARIMA model) is used as the basis of the time series analysis to forecast the US dollar to Naira Exchange Rate. We also test to check the stationarity condition of the variable using the time plot and Augmented Dickey Fuller. Data used for this study was derived from the Central Bank of Nigeria (CBN) spanning from 2002 to 2022. After model estimation, identification and diagnostic, results show that ARIMA (1, 1, 1) remains a better model to forecast the US dollar to Naira Exchange Rate.

Impact of Exchange Rate Fluctuations on Economic Growth in Nigeria (1987-2020)

This study is to examine the impact of exchange rate fluctuations on economic growth in Nigeria. The independent variables used for this study are money supply, interest rate, inflation rate and real exchange rate. The data used for this study is obtained from CBN statistical bulletin, 2019. The study used cointegration and Error correction mechanism to estimate the long run and short run relationship between the dependent variable and independent variables. The cointegartion result shows that there is a long run relationship between the dependent and the independent variables. The ECM results of the estimate shows that real exchange rate have positive and significant impact on Real GDP at 5% level of significance. The study therefore recommend that the CBN should track and effectively monitor all operators in the foreign exchange market, especially parallel market operators and other speculators so as to stabilize the Naira exchange rate and achieve steady economic growth. DOI: 10.7176/JESD/13-14-06 Publication date: July 31 st 2022

Nexus between Exchange Rate Fluctuation and Foreign Direct Investment in Nigeria

This study examined the nexus between exchange rate fluctuation and foreign direct investment in Nigeria from 1986 to 2020. The research was conducted using relevant econometric tools which include unit root test, co-integration test and Autoregressive Distributed Lag (ARDL) model. The results of ADF unit root test revealed that only interest rate is stationary at level while exchange rate, foreign direct investment, gross capital formation and inflation rate became stationary at first deference. The bounds test showed that there is a long run relationship between the foreign direct investment inflows, interest rate, exchange rate, gross capital formation and trade openness in Nigeria. The findings revealed a negative relationship between exchange rate and foreign direct investment in Nigeria and all the lagged value of exchange rate are statistical significant at 5% level of significant, which an indication of exchange rate importance on foreign direct investment inflows into Nigeria to a two standard error shock of exchange rate showed that exchange rate effect on foreign direct investment is persistence and significantly positive over the a period of up to 8 years after the shock. The exchange rate, though relatively stable, has a profound effect on foreign direct investment in Nigeria. The study recommended that given the perceived over-valued naira, a deliberate effort toward revaluation of the naira to reflect the true value of dollar to naira exchange rate will obviously increase the exchange rate and as such makes it cheaper to invest in Nigeria by foreign businesses.

Impact of International Trade On Economic Growth: The Granger Causality Test Approach

The study analyzes the impact of international trade on economic growth in Nigeria. The study’s specific objectives were used to achieve this, which is to investigate the impact of Nigeria’s trade openness on the country’s economic growth; to examine the extent to which trade balance has an impact on economic growth; and to find out how exchange rate affects economic growth. The time series data used for this study was sourced from CBN 2021. Using Granger Causality test it indicates that trade balance does not Granger cause real gross domestic product at 5% level of significance. It also indicates that the degree of trade openness does not Granger cause real gross domestic product at 5% level of significance. The regression result shows that trade is not statistically significant to economic growth. Also, the result shows that trade openness is not statistically significant to economic growth. It is recommended that there is need for effective foreign exchange management capable of ensuring optimal productivity in the critical sectors of the economy. This can be achieved by diversification of the economy away from oil with a view to expanding export of non-oil goods and services to strengthen naira exchange rate under the managed float regime. Keywords: International Trade, Economic growth, Trade openness, Granger Causality test, Foreign exchange, Economic diversification

Dynamic Effects of Exchange Rate Movements on Productivity Levels: New Evidence From Nigeria Based on NARDL

The dynamic relationship between exchange rate movements (appreciation and depreciation) and macroeconomic fundamentals had preoccupied the minds of researchers across the globe. Consequently, extensive research works have been conducted to unravel the puzzle; however, the findings remain inconclusive. The inconclusiveness of these researches may not be unconnected with the choice of model, the omission of key variables and erroneous assumption of symmetric interrelationships of the variables. To mitigate such error and fill the observed research gaps, this study leveraged on the non-linear autoregressive distributed lag to trace the possible asymmetric pass-through of the exchange rate to output growth in Nigeria. The study made use of monthly time series for the period 2000M1–2018M12 for empirical estimations. The empirical findings reveal an asymmetric pass-through from exchange rate to productivity. Exchange rate depreciation led to output retardation in the short run, but neither appreciation nor depreciation of the exchange affected output in the long run. The findings highlight that exchange rate depreciation of the local currency does not improve the country’s productivity. This reveals a disconnection and misalignment between exchange and productivity in Nigeria. The findings call for proper alignment of the Naira exchange rate with the U.S. dollar for improved productivity in the economy.