ASSESSMENT OF SHORT RUN AND LONG RUN DETERMINANTS OF EXCHANGE RATE IN NIGERIA 1980 TO 2015
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Date
2018
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Sokoto Journal of the Social Sciences
Abstract
This study is based on the investigation of the determinants of exchange rate in Nigeria
using time series data from 1980 to 2015 and employed Autoregressive Distributed Lagged
Model (ARDL) and Error Correction Mechanism (ECM) to capture both the short-run and long
run determinants of exchange rate in Nigeria. The results revealed that the past
value of interest rate, current inflation rate and current government expenditure causes the
Nigeria exchange rate to appreciate, hence, they have a negative relationship with the
exchange rate while past value of exchange rate, current value of interest rate, past value of
trade openness, past value of government expenditure and current value of foreign direct
investment causes depreciation of the Nigeria exchange rate due to their positive
relationship with the exchange rate. The author recommend that the monetary authority
should employ strategies that will prevent the rise in the interest rate differentials and
previous value of exchange rate as well increase the inflation rate by employing
the expansionary monetary policy. In addition government should increase their
consumption expenditure and reduce the openness of the Nigeria economy by
employing trade barriers which will lead to appreciation of the Nigeria exchange rate. As
such, the government should discourage the inflow of capital from foreign countries as they
cause the Nigeria exchange rate to depreciate.
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Keywords
Short, Long run, Nigeria, Autoregressive Distributive Lagged Model, Error Correction Model