INFLATION, INTEREST RATE AND EXCHANGE RATE IN NIGERIA: AN EXAMINATION OF THE ...AJHSSR Journal
ABSTRACT: This study examined the linkages among inflation, interest rate and exchange rate along with
money supply and GDP with the aim of showing how the interactions among variables should influence
monetary policy decisions in Nigeria using quarterly data from 2010 to 2018. The relationship among variables
was captured in a Vector Autoregressive (VAR) model. Co integration test was used to examine the long run
relationship among variables and consequently the estimates of a Vector Error Correction (VEC) model was
used to examine the short run relationship among variables. In our findingsexchange rate is indicated as the
most important monetary policy variable because it has a significant link with all variables in the model. The
findings show that price stability and economic growth could be achieve through effective exchange rate and
interest rate policies. It is recommended that the monetary authority should continue to intervene in the foreign
exchange market to stabilize exchange rate because as shown in this study, exchange rate in Nigeria has
significant links with inflation, interest rate, money supply and GDP; and increase in money supply to boost
domestic production by givinglow cost credit to firms that make use of more domestic inputs in production to
ensure that the increase in money supply does not lead to increase in import.
This study examined the nature of the relationship between the macroeconomic variables and share prices using the Nairobi Securities Exchange All Share Index (NASI). The study used four macroeconomic variables namely; interest rate, inflation, exchange rate and gross domestic product (GDP) for the period January 2008 to December 2014. The study found a positive relationship between GDP and NSE share prices. Exchange rate was found to have an insignificant positive relationship with share prices while interest rates had negative relationship with share prices. Inflation rate was found to have significant negative relationship with share prices due to its effect on purchasing power. The study concluded that the four macroeconomic variables combined had strong positive and significant relationship with share prices. The macroeconomic variables accounted for 86.97% of changes in share prices. The study recommended that capital markets regulators and other government regulatory bodies should promote a stable macroeconomic environment in the country for optimal performance of shares and stock market at large.
Developing economies are different than developed economies in many aspects, i.e., in terms of institutional framework and political situation etc. Thus, the monetary policy needed in developing countries is also different than developed countries. The goal of this study is to investigate exchange rate channel of monetary transmission mechanism in a developing country’s setup. The variables included in our analysis are interest rate, exchange rate, exports, consumer price index and gross domestic product. Johansen cointegration technique is applied to analyze the long run relationship among variables while multivariate VECM granger causality test is used to explore the direction of causality among the set of our variables. We use annual data ranging from 1980 to 2015 while taking account of the limitations of time series data. Our findings suggest that output has a negative long run relationship with exchange rate and interest rate, positive relationship with exports and no statistically significant relationship with inflation. Interest rate granger causes all four of our variables thus showing the power of this policy tool. Exchange rate causes exports, consumer price index and output which means exchange rate is the second most powerful variable in our analysis. Output is granger caused by interest rate, exports and exchange rate which confirms the sensitivity of output to these variables. Consumer price index is granger caused by all four of our variables and came out to be the most sensitive variable in our analysis.
INFLATION, INTEREST RATE AND EXCHANGE RATE IN NIGERIA: AN EXAMINATION OF THE ...AJHSSR Journal
ABSTRACT: This study examined the linkages among inflation, interest rate and exchange rate along with
money supply and GDP with the aim of showing how the interactions among variables should influence
monetary policy decisions in Nigeria using quarterly data from 2010 to 2018. The relationship among variables
was captured in a Vector Autoregressive (VAR) model. Co integration test was used to examine the long run
relationship among variables and consequently the estimates of a Vector Error Correction (VEC) model was
used to examine the short run relationship among variables. In our findingsexchange rate is indicated as the
most important monetary policy variable because it has a significant link with all variables in the model. The
findings show that price stability and economic growth could be achieve through effective exchange rate and
interest rate policies. It is recommended that the monetary authority should continue to intervene in the foreign
exchange market to stabilize exchange rate because as shown in this study, exchange rate in Nigeria has
significant links with inflation, interest rate, money supply and GDP; and increase in money supply to boost
domestic production by givinglow cost credit to firms that make use of more domestic inputs in production to
ensure that the increase in money supply does not lead to increase in import.
This study examined the nature of the relationship between the macroeconomic variables and share prices using the Nairobi Securities Exchange All Share Index (NASI). The study used four macroeconomic variables namely; interest rate, inflation, exchange rate and gross domestic product (GDP) for the period January 2008 to December 2014. The study found a positive relationship between GDP and NSE share prices. Exchange rate was found to have an insignificant positive relationship with share prices while interest rates had negative relationship with share prices. Inflation rate was found to have significant negative relationship with share prices due to its effect on purchasing power. The study concluded that the four macroeconomic variables combined had strong positive and significant relationship with share prices. The macroeconomic variables accounted for 86.97% of changes in share prices. The study recommended that capital markets regulators and other government regulatory bodies should promote a stable macroeconomic environment in the country for optimal performance of shares and stock market at large.
Developing economies are different than developed economies in many aspects, i.e., in terms of institutional framework and political situation etc. Thus, the monetary policy needed in developing countries is also different than developed countries. The goal of this study is to investigate exchange rate channel of monetary transmission mechanism in a developing country’s setup. The variables included in our analysis are interest rate, exchange rate, exports, consumer price index and gross domestic product. Johansen cointegration technique is applied to analyze the long run relationship among variables while multivariate VECM granger causality test is used to explore the direction of causality among the set of our variables. We use annual data ranging from 1980 to 2015 while taking account of the limitations of time series data. Our findings suggest that output has a negative long run relationship with exchange rate and interest rate, positive relationship with exports and no statistically significant relationship with inflation. Interest rate granger causes all four of our variables thus showing the power of this policy tool. Exchange rate causes exports, consumer price index and output which means exchange rate is the second most powerful variable in our analysis. Output is granger caused by interest rate, exports and exchange rate which confirms the sensitivity of output to these variables. Consumer price index is granger caused by all four of our variables and came out to be the most sensitive variable in our analysis.
The objective of this study is to identify the determinants of inflation in West Africa, mainly in the WAEMU zone, in order to contribute to improving the conduct of monetary policy. The equation of the exchange of the Quantitative Theory of the Currency and the generalized method of moments (MMG) in dynamic panel is used. Annual data concerning six countries in West Africa and range from 1991 to 2015. The results of the estimation show that in addition to the economic growth rate and the money supply, the devaluation has a significant effect on inflation. As we can see, inflation is not systematically a monetary phenomenon in West Africa. The authorities must therefore seek to determine the optimal threshold for the rate of increase of the money supply.
Empirical literature on money demand is mainly based on the estimation of a long run relation by means of time-invariant cointergration approach. Taiwan has experienced the economic and financial regime change since 1979. The purpose of this paper is to test structural breaks in Taiwan long run money demand equation. We examine six of the most influential specifications proposed in the literature. The classical set of explanatory variables (e.g. income and interest rates) is extended on the base of a number underlying economic reasons related to financial, labor and international portfolio characteristics. The results suggest that international financial market variables and the classical specifications are the key determinants of structural instability observed in Taiwan broad money.
This paper analysed the forecasting ability of yield-curve as a predictor of the short-run fluctuations in economic activities in Namibia. The study employed the techniques of unit root, cointegration, impulse response functions and forecast error variance decomposition on the quarterly data covering the period 1996 to 2015. The results revealed a negative relationship between the term structure of interest rates and economic activities, though statistically insignificant. This suggests that the yield-curve has no forecasting ability as a predictor of economic activity in Namibia.
Statistical Analysis of Interrelationship between Money Supply Exchange Rates...Atif Ahmed
Several researches have been conducted to study the impact of different macro-economic variables and their influence on government expenditure. By using different statistical tools researchers have examined that how money supply and exchange rate influence the government expenditure. Few other studies also conducted work on the quarterly time series data to examine the long run equilibrium association between the macroeconomic variables.
This paper examine the impact of macroeconomic factors on firm level equity premium. Following
the concept of macro-based risk factor model, we consider macroeconomic variable set of equity premium
determinant. The macroeconomic variables include interest rate, money supply, industrial production, inflation
and foreign direct investment. The macroeconomic variables are not in control of the firm's management. These
are the external factors which affect the company as well as the overall market returns. The Macro-based
Multifactor Model is estimated for the whole sample. It is found that the market premium and the selected five
macroeconomic factors significantly affect the firm level equity premium of non-financial firms. Increase in
market premium, money supply, foreign direct investment and industrial production positively affect the firm
level equity premium while increase in interest rate and inflation negatively affects the firm level equity
premium. These findings are beneficial for the common shareholders, institutional investors and policy makers
to find more specific insight about the relationship between macroeconomic variables and equity premium of
non-financial sectors.
Abstract: The theoretical relationship of the long-run equilibrium between real exchange rates and interest rate differentials is essentially derived from the Purchasing Power Parity (PPP) and the uncovered interest parity. However, empirical evidence on this long-run relationship has rather been inconclusive. While several authors are able to establish the long-run relationship between real exchange rates and interest rate differentials other could not found this relationship. The reason for lack of relationship in some of the studies is as a result of omitted variables (Meese and Rogoff, 1988). Therefore, attempt is made in this study to evaluate this relationship between real exchange rate and interest rate differential for the case of Nigeria by controlling for foreign exchange reserves. The paper uses monthly data for the period 1993:1-2012:12 and applies Autoregressive Distributed Lags (ARDL) model. The estimates suggest the existence of long-run relationship between real exchange rate, interest rate differential and foreign exchange reserves. In the long run, the exchange rate coefficient has a positive effect on the foreign reserves. However, the effect of interest rate differential is negative and statistically significant. On the short run dynamics, the finding indicates a non-monotonic relationship between real exchange rate, interest rate differential and foreign exchange reserves. The out-of-sample forecast indicates a better forecast using ARMA model as all Theil coefficients are close zero for all the horizons used in the model.
American Journal of Multidisciplinary Research and Development is indexed, refereed and peer-reviewed journal, which is designed to publish research articles.
Macroeconomic Variables on Stock Market Interactions: The Indian ExperienceIOSR Journals
To examine the effect of macroeconomic variables on the stock price movement in Indian Stock Market. Six variables of macro-economy (inflation, exchange rate, Industrial production, MoneySupply, Goldprice, interest rate) are used as independent variables. Sensex, Nifty and BSE 100are indicated as dependent variable. The monthly time series data are gathered from RBI handbook over the period of April 2008 to June 2012. Multiple regression analysis is applied in this paper to construct a quantitative model showing the relationship between macroeconomics and stock price. The result of this paper indicates that significant relationship is occurred between macroeconomics variable’s and stock price in India.
This paper examined the causal relationship between real exchange rate returns and real stock price returns in Nigeria from January 1985- June 2017. For the investigation the VAR/pair-wise granger causality test and Sims-causality test were applied. From the evidences shown, there exist a unidirectional causal relationship between real exchange rate returns and real stock price returns. Causality running from Real exchange rate returns to real stock price returns. Thus, the past values of REXR can influence/predict the present value of RSPR. This confirms the findings of Olugbenga (2012) and the proposition of the flow oriented model. Also, evidences from the sims-Causality test show that there is uni-directional causality running from Real exchange rate returns to real stock price returns. Thus, the present value of REXR can influence/predict the future values of RSPR. Therefore, it is important for the monetary authority of Nigeria to put into due consideration the exchange rate policy in its conduct of monetary policy internally. Investors could also use these findings as an effective tool in stock trading. As movement in the foreign exchange market (real exchange rate returns) could have a great impact on the present and future movement of stock exchange market (real stock price returns) in Nigeria.
QUALITY ASSURANCE FOR ECONOMY CLASSIFICATION BASED ON DATA MINING TECHNIQUESIJDKP
Researchers in the quality assurance field used traditional techniques for increasing the organization income and take the most suitable decisions. Today they focus and search for a new intelligent techniques in order to enhance the quality of their decisions. This paper based on applying the most robust trend in computer science field which is data mining in the quality assurance field. The cases study which is discussed in this paper based on detecting and predicting the developed and developing countries based on the indicators. This paper uses three different artificial intelligent techniques namely; Artificial Neural Network (ANN), k-Nearest Neighbor (KNN), and Fuzzy k-Nearest Neighbor (FKNN). The main target of this paper is to merge between the last intelligent techniques applied in the computer science with the quality assurance approaches. The experimental result shows that proposed approaches in this paper achieved the highest accuracy score than the other comparative studies as indicates in the experimental result section.
The objective of this study is to identify the determinants of inflation in West Africa, mainly in the WAEMU zone, in order to contribute to improving the conduct of monetary policy. The equation of the exchange of the Quantitative Theory of the Currency and the generalized method of moments (MMG) in dynamic panel is used. Annual data concerning six countries in West Africa and range from 1991 to 2015. The results of the estimation show that in addition to the economic growth rate and the money supply, the devaluation has a significant effect on inflation. As we can see, inflation is not systematically a monetary phenomenon in West Africa. The authorities must therefore seek to determine the optimal threshold for the rate of increase of the money supply.
Empirical literature on money demand is mainly based on the estimation of a long run relation by means of time-invariant cointergration approach. Taiwan has experienced the economic and financial regime change since 1979. The purpose of this paper is to test structural breaks in Taiwan long run money demand equation. We examine six of the most influential specifications proposed in the literature. The classical set of explanatory variables (e.g. income and interest rates) is extended on the base of a number underlying economic reasons related to financial, labor and international portfolio characteristics. The results suggest that international financial market variables and the classical specifications are the key determinants of structural instability observed in Taiwan broad money.
This paper analysed the forecasting ability of yield-curve as a predictor of the short-run fluctuations in economic activities in Namibia. The study employed the techniques of unit root, cointegration, impulse response functions and forecast error variance decomposition on the quarterly data covering the period 1996 to 2015. The results revealed a negative relationship between the term structure of interest rates and economic activities, though statistically insignificant. This suggests that the yield-curve has no forecasting ability as a predictor of economic activity in Namibia.
Statistical Analysis of Interrelationship between Money Supply Exchange Rates...Atif Ahmed
Several researches have been conducted to study the impact of different macro-economic variables and their influence on government expenditure. By using different statistical tools researchers have examined that how money supply and exchange rate influence the government expenditure. Few other studies also conducted work on the quarterly time series data to examine the long run equilibrium association between the macroeconomic variables.
This paper examine the impact of macroeconomic factors on firm level equity premium. Following
the concept of macro-based risk factor model, we consider macroeconomic variable set of equity premium
determinant. The macroeconomic variables include interest rate, money supply, industrial production, inflation
and foreign direct investment. The macroeconomic variables are not in control of the firm's management. These
are the external factors which affect the company as well as the overall market returns. The Macro-based
Multifactor Model is estimated for the whole sample. It is found that the market premium and the selected five
macroeconomic factors significantly affect the firm level equity premium of non-financial firms. Increase in
market premium, money supply, foreign direct investment and industrial production positively affect the firm
level equity premium while increase in interest rate and inflation negatively affects the firm level equity
premium. These findings are beneficial for the common shareholders, institutional investors and policy makers
to find more specific insight about the relationship between macroeconomic variables and equity premium of
non-financial sectors.
Abstract: The theoretical relationship of the long-run equilibrium between real exchange rates and interest rate differentials is essentially derived from the Purchasing Power Parity (PPP) and the uncovered interest parity. However, empirical evidence on this long-run relationship has rather been inconclusive. While several authors are able to establish the long-run relationship between real exchange rates and interest rate differentials other could not found this relationship. The reason for lack of relationship in some of the studies is as a result of omitted variables (Meese and Rogoff, 1988). Therefore, attempt is made in this study to evaluate this relationship between real exchange rate and interest rate differential for the case of Nigeria by controlling for foreign exchange reserves. The paper uses monthly data for the period 1993:1-2012:12 and applies Autoregressive Distributed Lags (ARDL) model. The estimates suggest the existence of long-run relationship between real exchange rate, interest rate differential and foreign exchange reserves. In the long run, the exchange rate coefficient has a positive effect on the foreign reserves. However, the effect of interest rate differential is negative and statistically significant. On the short run dynamics, the finding indicates a non-monotonic relationship between real exchange rate, interest rate differential and foreign exchange reserves. The out-of-sample forecast indicates a better forecast using ARMA model as all Theil coefficients are close zero for all the horizons used in the model.
American Journal of Multidisciplinary Research and Development is indexed, refereed and peer-reviewed journal, which is designed to publish research articles.
Macroeconomic Variables on Stock Market Interactions: The Indian ExperienceIOSR Journals
To examine the effect of macroeconomic variables on the stock price movement in Indian Stock Market. Six variables of macro-economy (inflation, exchange rate, Industrial production, MoneySupply, Goldprice, interest rate) are used as independent variables. Sensex, Nifty and BSE 100are indicated as dependent variable. The monthly time series data are gathered from RBI handbook over the period of April 2008 to June 2012. Multiple regression analysis is applied in this paper to construct a quantitative model showing the relationship between macroeconomics and stock price. The result of this paper indicates that significant relationship is occurred between macroeconomics variable’s and stock price in India.
This paper examined the causal relationship between real exchange rate returns and real stock price returns in Nigeria from January 1985- June 2017. For the investigation the VAR/pair-wise granger causality test and Sims-causality test were applied. From the evidences shown, there exist a unidirectional causal relationship between real exchange rate returns and real stock price returns. Causality running from Real exchange rate returns to real stock price returns. Thus, the past values of REXR can influence/predict the present value of RSPR. This confirms the findings of Olugbenga (2012) and the proposition of the flow oriented model. Also, evidences from the sims-Causality test show that there is uni-directional causality running from Real exchange rate returns to real stock price returns. Thus, the present value of REXR can influence/predict the future values of RSPR. Therefore, it is important for the monetary authority of Nigeria to put into due consideration the exchange rate policy in its conduct of monetary policy internally. Investors could also use these findings as an effective tool in stock trading. As movement in the foreign exchange market (real exchange rate returns) could have a great impact on the present and future movement of stock exchange market (real stock price returns) in Nigeria.
QUALITY ASSURANCE FOR ECONOMY CLASSIFICATION BASED ON DATA MINING TECHNIQUESIJDKP
Researchers in the quality assurance field used traditional techniques for increasing the organization income and take the most suitable decisions. Today they focus and search for a new intelligent techniques in order to enhance the quality of their decisions. This paper based on applying the most robust trend in computer science field which is data mining in the quality assurance field. The cases study which is discussed in this paper based on detecting and predicting the developed and developing countries based on the indicators. This paper uses three different artificial intelligent techniques namely; Artificial Neural Network (ANN), k-Nearest Neighbor (KNN), and Fuzzy k-Nearest Neighbor (FKNN). The main target of this paper is to merge between the last intelligent techniques applied in the computer science with the quality assurance approaches. The experimental result shows that proposed approaches in this paper achieved the highest accuracy score than the other comparative studies as indicates in the experimental result section.
Inflation targeting in Emerging Market Economies Sarthak Luthra
The presentation represents inflation targeting in EMEs, with a focus on various exchange rate regimes in Asian countries and their susceptibility to financial crisis.
EFFECTIVE MONETARY POLICY AS A RECIPE FOR MACROECONOMIC STABILITY IN NIGERIApaperpublications3
Abstract: The basic objective of this paper was to investigate effective monetary policy as a recipe for macroeconomic stability in Nigeria, using annual time series data from 1981 to 2014. The paper employs OLS methodology with all the BLUE assumption. The results show that considering the magnitude, 1% increase in RGDP (proxy for economic growth) is brought about by 0.86% increase in narrow money supply (M1), 0.63% increase in broad money supply (M2), 258% decrease in inflation rate (INFLARATE), 1276.3% increase in lending rate (LEDRATE), and 143.9% increase in gross fixed capital formation. This implies that an increase in lending rate and other related variables will lead to a significant increase in real GDP, proxy for economic growth in Nigeria. The estimated value of R2 (goodness of fit) of 0.67 or 67% shows that 67% systematic variation in Real GDP is caused by variation in narrow money supply, broad money supply, inflation rate, lending rate, and gross fixed capital formation. This indicates that indeed, monetary policy has an effect on macroeconomic stability in Nigeria. The study seems to suggest that concerted efforts should be made by the government to focus on increment in narrow and broad money supplies which will aid in the financing of the country’s monetary growth, balancing the price increase, stimulating increased spending, and further enhancing the country’s macroeconomic variables.
This study examined the relationship between interest rate and economic growth in Nigeria, using secondary time series panel data for the period 1985 – 2014. Data was collected from various issues of the Central Bank of Nigeria Statistical Bulletin and the National Bureau of Statistics. The study employed Augmented Dicker-Fuller (ADF) unit root tests as well as Johansen co-integration test followed by Error Correlation Model (ECM) approach. The ADF unit root test results indicated that the variables are all stationary at first difference. The variables were integrated of order one (1) which implies that the null hypothesis of non-stationary for all the variables of interest is rejected. The Johansen co-integration test result revealed the existence of two co-integrating relationship between the variables at 5% level of significance. The study proceeded to perform the ECM approach and found that interest rate is inversely related to economic growth, but the relationship is statistically insignificant. The recommended that monetary authorities should adopt appropriate polices that would promote and stimulate economic growth in Nigeria.
Effect of Government Policies on Price Stability in Nigeriaijtsrd
This study examined the effect of monetary and fiscal policies on price stability in Nigeria using a data rich framework spanning from 1986 2020. The main problem with the macro economic policies that prompted this study was the fact that despite the series of the CBN Monetary Policy Committee decisions and government tax and expenditure implementation there is apparently no useful effect on inflation price . The study employed Auto regression Distributed Lag ARDL Bound Test for Co integration of data analysis depending upon the time series properties of the data that confer mixed order of integration in addition to the conduct of the unit root test and Error Correction Model ECM estimation. The ADF test revealed that LNCPI, EXR, GSDMD, GEXP, GTX and M2 were stationary at 1 1 while RIR, MPR and BOP at 1 0 . Pesaran, Shin and Smith 2001 established that the ARDL bounds technique allows a mixture of 1 1 and 1 0 variables as regressors. Hence, we proceed to perform the ARDL bounds test for integration. The results of the ARDL bounds revealed that the null hypotheses were all rejected implying that a long run effect exists among monetary and fiscal policies variables and CPI in a multivariate framework. ECM coefficient of 0.2942 conforms with expectation. Durbin Watson statistic 0f 1 9925 revealed that the model seems not to have any case of autocorrelation. The result of our analysis shows that fiscal policy rather than monetary policy exerts a more potent effect on price stability in Nigeria. The study recommends that both monetary and fiscal policies should be complementary in order to be effective in taming inflation in Nigeria. Onehi, Damian Haruna | Ibenta, Steve Nkem | Adigwe, Patrick, K. | Emejulu, Ikenna Justin "Effect of Government Policies on Price Stability in Nigeria" Published in International Journal of Trend in Scientific Research and Development (ijtsrd), ISSN: 2456-6470, Volume-7 | Issue-1 , February 2023, URL: https://www.ijtsrd.com/papers/ijtsrd52766.pdf Paper URL: https://www.ijtsrd.com/management/accounting-and-finance/52766/effect-of-government-policies-on-price-stability-in-nigeria/onehi-damian-haruna
The study gauged the influence of exchange rate fluctuations on the Performance of the Nigerian Economy over the time from of 1986 to 2016, utilizing secondary data tracked from the statistical report of the Apex Nigerian bank, and utilizing techniques such as Unit root test, Generalized autoregressive conditional heteroscedasticity (GARCH), Impulse-Response Output and Variance-Decomposition Test to evaluate variables such as Interest rate, inflation rate, exchange rate against a sole indicator of Economic Performance I.e. Gross Domestic Product Growth rate (GDPGR), it was discovered that despite the short run influx of the spill over volatility of Interest rate and inflation rate, there exist no long run volatility influence of interest rate on Economic Performance in Nigeria. It was therefore recommended that the apex financial institution and relevant policy makers should ensure an interest rate system and status that could stimulate growth or production and the nation should endeavour to utilize her interest rate in controlling its output level as it motivates Economic Performance (GDPGR).
Abstract The main purpose of this paper is to investigate whether stock prices and exchange rates are related to each
other or not. Both the short term and the long term association between these variables are discovered. The study applies
monthly and quarterly data on two gulf countries, including Kingdom Saudi Arabia (KSA) and United Arab Emirate (UAE)
for the period January 2008 to December 2009. The results of this study in the short term found that the exchange rate
influence positively on the stock market price index for United Arab Emirate and there is no association between them for
Kingdom Saudi Arabia. Moreover the study in the long term found that the exchange rate influence negatively on stock
market price index for the United Arab Emirate. While no association between these variables in Kingdom Saudi Arabia.
CAPITAL MARKET DEVELOPMENT AND INFLATION IN NIGERIAAJHSSR Journal
ABSTRACT :This study examined the impact of inflation and capital market development in Nigeria. The
ultimate objective of the study is centered on an empirical investigation of inflation and its impact on the growth
of the Nigerian capital market, and also the trend of inflation and capital market development in Nigeria. In
order to achieve these objectives, the study used tables and graphs to examine the trend of inflation and capital
market development in Nigeria. Augmented Dickey Fuller unit root test was used to check the behavior of data,
and the ARDL bound test was used to check if variables are cointegrated. Post estimation test which includes
the serial correlation, heteroskedasticity and the histogram normality test was also conducted. Data were
collected from secondary sources, such as central bank of Nigeria statistical bulletin and the world development
indicator. The unit root test revealed that the financial sector, financial intermediaries and interest rate were
stationary at levels but exchange rate, inflation, government spending and trade openness became stationary
after the first difference. Empirical findings confirmed that there is a statistically significant long- and short-run
negative effect of inflation on capital market development. On the contrary, economic growth has a statistically
significant long- and short-run positive impact on capital market performance. In addition, results confirmed
that there is positive support of the previous financial sector policies on capital market performance in the
current period.
The secret way to sell pi coins effortlessly.DOT TECH
Well as we all know pi isn't launched yet. But you can still sell your pi coins effortlessly because some whales in China are interested in holding massive pi coins. And they are willing to pay good money for it. If you are interested in selling I will leave a contact for you. Just telegram this number below. I sold about 3000 pi coins to him and he paid me immediately.
Telegram: @Pi_vendor_247
how to sell pi coins effectively (from 50 - 100k pi)DOT TECH
Anywhere in the world, including Africa, America, and Europe, you can sell Pi Network Coins online and receive cash through online payment options.
Pi has not yet been launched on any exchange because we are currently using the confined Mainnet. The planned launch date for Pi is June 28, 2026.
Reselling to investors who want to hold until the mainnet launch in 2026 is currently the sole way to sell.
Consequently, right now. All you need to do is select the right pi network provider.
Who is a pi merchant?
An individual who buys coins from miners on the pi network and resells them to investors hoping to hang onto them until the mainnet is launched is known as a pi merchant.
debuts.
I'll provide you the Telegram username
@Pi_vendor_247
what is the best method to sell pi coins in 2024DOT TECH
The best way to sell your pi coins safely is trading with an exchange..but since pi is not launched in any exchange, and second option is through a VERIFIED pi merchant.
Who is a pi merchant?
A pi merchant is someone who buys pi coins from miners and pioneers and resell them to Investors looking forward to hold massive amounts before mainnet launch in 2026.
I will leave the telegram contact of my personal pi merchant to trade pi coins with.
@Pi_vendor_247
how to swap pi coins to foreign currency withdrawable.DOT TECH
As of my last update, Pi is still in the testing phase and is not tradable on any exchanges.
However, Pi Network has announced plans to launch its Testnet and Mainnet in the future, which may include listing Pi on exchanges.
The current method for selling pi coins involves exchanging them with a pi vendor who purchases pi coins for investment reasons.
If you want to sell your pi coins, reach out to a pi vendor and sell them to anyone looking to sell pi coins from any country around the globe.
Below is the contact information for my personal pi vendor.
Telegram: @Pi_vendor_247
how can i use my minded pi coins I need some funds.DOT TECH
If you are interested in selling your pi coins, i have a verified pi merchant, who buys pi coins and resell them to exchanges looking forward to hold till mainnet launch.
Because the core team has announced that pi network will not be doing any pre-sale. The only way exchanges like huobi, bitmart and hotbit can get pi is by buying from miners.
Now a merchant stands in between these exchanges and the miners. As a link to make transactions smooth. Because right now in the enclosed mainnet you can't sell pi coins your self. You need the help of a merchant,
i will leave the telegram contact of my personal pi merchant below. 👇 I and my friends has traded more than 3000pi coins with him successfully.
@Pi_vendor_247
Currently pi network is not tradable on binance or any other exchange because we are still in the enclosed mainnet.
Right now the only way to sell pi coins is by trading with a verified merchant.
What is a pi merchant?
A pi merchant is someone verified by pi network team and allowed to barter pi coins for goods and services.
Since pi network is not doing any pre-sale The only way exchanges like binance/huobi or crypto whales can get pi is by buying from miners. And a merchant stands in between the exchanges and the miners.
I will leave the telegram contact of my personal pi merchant. I and my friends has traded more than 6000pi coins successfully
Tele-gram
@Pi_vendor_247
If you are looking for a pi coin investor. Then look no further because I have the right one he is a pi vendor (he buy and resell to whales in China). I met him on a crypto conference and ever since I and my friends have sold more than 10k pi coins to him And he bought all and still want more. I will drop his telegram handle below just send him a message.
@Pi_vendor_247
Exploring Abhay Bhutada’s Views After Poonawalla Fincorp’s Collaboration With...beulahfernandes8
The financial landscape in India has witnessed a significant development with the recent collaboration between Poonawalla Fincorp and IndusInd Bank.
The launch of the co-branded credit card, the IndusInd Bank Poonawalla Fincorp eLITE RuPay Platinum Credit Card, marks a major milestone for both entities.
This strategic move aims to redefine and elevate the banking experience for customers.
what is the future of Pi Network currency.DOT TECH
The future of the Pi cryptocurrency is uncertain, and its success will depend on several factors. Pi is a relatively new cryptocurrency that aims to be user-friendly and accessible to a wide audience. Here are a few key considerations for its future:
Message: @Pi_vendor_247 on telegram if u want to sell PI COINS.
1. Mainnet Launch: As of my last knowledge update in January 2022, Pi was still in the testnet phase. Its success will depend on a successful transition to a mainnet, where actual transactions can take place.
2. User Adoption: Pi's success will be closely tied to user adoption. The more users who join the network and actively participate, the stronger the ecosystem can become.
3. Utility and Use Cases: For a cryptocurrency to thrive, it must offer utility and practical use cases. The Pi team has talked about various applications, including peer-to-peer transactions, smart contracts, and more. The development and implementation of these features will be essential.
4. Regulatory Environment: The regulatory environment for cryptocurrencies is evolving globally. How Pi navigates and complies with regulations in various jurisdictions will significantly impact its future.
5. Technology Development: The Pi network must continue to develop and improve its technology, security, and scalability to compete with established cryptocurrencies.
6. Community Engagement: The Pi community plays a critical role in its future. Engaged users can help build trust and grow the network.
7. Monetization and Sustainability: The Pi team's monetization strategy, such as fees, partnerships, or other revenue sources, will affect its long-term sustainability.
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11.monetary policy, exchange rate and inflation rate in nigeria
1. Research Journal of Finance and Accounting www.iiste.org
ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online)
Vol 3, No 3, 2012
Monetary Policy, Exchange Rate and Inflation Rate in Nigeria
A Co-integration and Multi-Variate Vector Error Correction
Model Approach
Philip Ifeakachukwu Nwosa* Isiaq Olasunkanmi Oseni
Department of Economics, Accounting and Finance, Bells University of Technology, Ota, Ogun
State.
*E-mail of the corresponding author: philipnzagi@yahoo.co.uk
Abstract
Evidences from empirical literature on the nexus among monetary policy, exchange rate and inflation rate
have been mixed. Thus this paper attempts to re-examine this issue in Nigeria for the period spanning 1986
to 2010.In contrast to previous studies, this paper employed a Co-integration and Multi-Variate Vector
Error Correction Model approach to examine both the long run and the short run nexus among monetary
policy, exchange rate and inflation rate. Based on this approach, the paper found that there exist at least a
co-integrating vector among the variables and the VECM estimate showed that a uni-directional causation
exist from exchange rate and inflation rate to short term interest rate (measure of monetary policy) while a
bi-directional causality exist form inflation rate to exchange rate. No evidence of causality was observed in
the from short term interest to exchange rate and from interest rate to inflation rate. The theoretical
transmission nexus deduced from the VECM estimate further revealed that changes in macroeconomic
variables such as exchange rate and inflation rate granger caused a change in monetary policy stance and
not otherwise. Based on these findings, this study recommends appropriate control and management of
both the exchange rate and inflation rate.
Keywords: monetary policy, exchange rate, inflation rate and VECM.
1. Introduction
Monetary policy has always been seen as a fundamental instrument over the years for the attainment of
macroeconomic stability, often viewed as prerequisite to achieving sustainable output growth. Thus, in the
pursuit of macroeconomic stability, the managers of monetary policy have often set targets on intermediate
variables which include the short term interest rate, growth of money supply and exchange rate. Among
these intermediate variables of monetary, the exchange rate is argued to have a greater influence on the
economy through its effect on the value of domestic currency, domestic inflation, the external sector,
macroeconomic credibility, capital flows and financial stability. Increased exchange rate directly affects the
prices of imported commodities and an increase in the price of imported goods and services contributes
directly to increase in inflation (CBN, 2008).
The adverse consequence of inflationary pressure from exchange rate depreciation have been a serious
concern for the monetary authorities, economists and policy analyst, given that these variables (exchange
rate and inflation rate) are the key barometers of economic performance. Consequently assessing the nexus
among monetary policy, exchange rate and inflation rate is pertinent because an understanding of the nexus
between these variables is prerequisite for the successful conducting and adoption of inflation targeting,
which the Nigerian government has also made prime objective in the attainment of its macroeconomic
objective. Under inflation targeting, monetary policy stance (through changes in short term interest) affects
inflation through a large set of variables including exchange rate (Mukherjee and Bhattacharya, 2011).
Base on the above, this study empirically determine link among monetary policy, exchange rate and
inflation rate, in line with studies such as (Holod (2000), Kara and Nelson (2002), Berument and
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Pasaogullari (2003), Muco et al (2004), Rusitara (2004), An and Sun (2008) and Khan (2008). With respect
to Nigeria, studies such as Mete and Michael (2005), Folawewo and Oshinubi (2006), Okhira and Saliu
(2008), Omotor (2008), Chuku (2009) and Chimobi and Uche (2010) have investigated the impact of
individual effect of monetary policy on exchange rate and inflation rate. These studies failed to take into
cognizance the nature of causality among these variables. The causality approach allows us to sidestep the
need for a theoretical structural model by treating all endogenous variables in the system as a function of
the lagged values of all the endogenous variables in the system (Amarakoon, 2009). This is the gap this
study seek to fill in the literature.
The rest of the paper proceed as follows: section two presents a review of literature while section three
presents the methodology for the study. In section four, the findings were discussed while section five
summarizes the major findings and offers some policy recommendations.
2. Empirical Review
Chimobi and Uche (2010) examined the relationship between money, inflation and output in Nigeria
covering the period of 1970 to 2005. Using co-integration and granger-causality test analysis, the study
revealed no existence of a co-integrating vector in the series used. Money supply was seen to granger cause
both output and inflation. The study also found empirical support in context to the money-prices-output
hypothesis for Nigerian economy, M2 have a strong causal effect on the real output as well as on prices.
This suggests that monetary stability can contribute towards price stability in the Nigerian economy since
the variation in price level is mainly caused by money supply, the study concluded that inflation in Nigeria
is to a much extent a monetary phenomenon.
Chuku (2009) examined the effect of monetary policy innovations in Nigeria. The study used a structural
vector auto-regression (SVAR) approach to trace the effects of monetary policy shocks on output and
prices in Nigeria with a sample data spanning from 1986 to 2008. The study conducted the experiment
using three alternative policy instruments i.e. broad money (M2), Minimum Rediscount Rate (MRR) and
the real effective exchange rate (REER). The study made the assumption that the Central Bank cannot
observe unexpected changes in output and prices within the same period. This places a recursive restriction
on the disturbances of the SVAR and helped to generate impulse response functions that tracked the effects
of monetary policy innovations on output and prices. The study found evidence that monetary policy
innovations have both real and nominal effects on economic parameter depending on the policy variable
selected. The study was of the view that price-based nominal anchors (MRR and REER) do not have a
significant influence on real economic activity. Whereas, innovations in the quantity-based nominal anchor
(M2) affects economic activities modestly. It therefore follows that monetary policy shocks have been a
modest driver of business cycle fluctuations in Nigeria. The study concluded that the manipulation of the
quantity of money (M2) in the economy is the most influential instrument for monetary policy
implementation and recommended that central bankers should place more emphasis on the use of the
quantity-based nominal anchor rather than the price-based nominal anchors.
Omotor (2008) examined the impact of price response to exchange rate changes in Nigeria covering the
period of 1970 to 2003 and using the vector error correction model (VEC) and slope-dummy methodology.
The study showed that exchange rate and money supply aggravated inflation in Nigeria and suggested that
a stable, consistent and complementary policy on money supply and exchange rate is required for price
stability; the domestic output expansion is needed to meet the ever-growing food demand in Nigeria. The
study concluded by giving four recommendations; money affects inflation with a lag. Thus the design of
monetary policy should take this into cognizance in monitoring and targeting; exchange rate depreciation
can be inflationary; a stable and consistent monetary cum exchange rate policy stance in order to stem
inflation is advocated.; sustenance of stringent regulations by the monetary authorities (Central Bank of
Nigeria) to check fraudulent transfers of public foreign exchange and round-tripping by commercial banks;
and policies that will encourage domestic output expansion are needed to feed the ever-growing food
demand in Nigeria.
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Vol 3, No 3, 2012
Okhira and Saliu (2008) examined the impact of exchange rate on inflation rate and the relationship that
exist among government expenditure, money supply exchange rate, oil revenue and inflation in Nigeria.
The study adopted the Augmented Dickey- Fuller to carry out the unit root test and co-integration with
Johansen test. The study observed that variables are correlated, which means the impact of each variable on
the rate of inflation in the economy is inseparable. Also, that there was a strong long relationship among the
variables, though inflation and exchange rate show no long relationship. The study also found that measure
by government to reducing amount of money supplied, government expenditure and control measure on
exchange rate could lead to poor productivity in the country. The study concluded by recommending that
the policy maker should try to cushion the effect of inflation on the economy when the need arises so that
rise in exchange rate will not lead to inflationary pressure in the short run even though inflation and
exchange rate have no long term relationship, short term relationship seems to exist.
Folawewo and Oshinubi (2006) examined the efficacy of monetary policy in controlling inflation and
exchange rate instability in Nigeria covering the period of 1980:1 to 2000:4 and employing the rational
expectation framework and time series analysis. The study observed that the effort of monetary policy at
influencing the finance of government fiscal deficit through the determination of the inflation-tax rate
affects both the rate of inflation and the real exchange rate, thereby causing volatility in their rates. The
study found that inflation affects volatility of its own rate as well as the rate of real exchange and the study
concluded that monetary policy should be set in such a way that the objective it is to achieve is well
defined.
Mete and Adebayo (2005) examined whether monetary aggregates have useful information for forecasting
inflation in the case of Nigeria other than that provided by inflation itself using a sample data spanning
from 1990 to 1998. The study adopted two approaches; mean absolute percentage errors (MAPEs) and auto
regression model. The study revealed that the Treasury bill rate, domestic debt and M2 (broad money)
provide the most important information about price movements. Treasury bill rate provided the best
information, since it has the lowest MAPE. Conversely, the least important variables were the deposit rate;
dollar exchange rate and M1 (narrow money). M2 provides more information about inflation than M1 in
the sample period. They also estimated an inflation equation and determined alternately whether M2 enter
the equation significantly and they found that M2 is not significant. Exchange rate levels, and
contemporaneous value of the domestic debt, are significant in the model. The results obtained were robust
across the two methods used and they concluded that although the monetary variables contained some
information about inflation, exchange rate and domestic debt may be more useful in predicting inflation in
Nigeria.
3. Methodology
3.1 Model Specification
To analyze the nexus among monetary policy (int), exchange rate (ext) and inflation rate (inf), this study
employ the causality approach developed by Granger (1969). Unlike past studies which employed pairwise
bivariate granger causality test, this study employed the causality approach based on multivariate error
correction model. This is because: first, the multivariate error correction model approach allows us to
examine both the short run and long run causality among variables. Secondly, the use of simple traditional
granger causality test has been identified (Engel & Granger, 1987; Shan & Morris, 2002) as inappropriate
when variables are I(1) series. This is because the simple F-test statistics does not have a standard
distribution (Jordaan & Eita, 2007). Therefore, proper statistical inference can only be obtained by
analyzing the causality test on the basis of vector error correction model (Yucel, 2009; Nwosa, Agbeluyi
and Saibu, 2011).
3.2 Mode Specification
In order to analyze the extent of the causal nexus among monetary policy, exchange rate and inflation rate,
this study employs a VAR model of the form:
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Vol 3, No 3, 2012
m n r
INTt = ∑ α 11 INT + ∑n α 12 EXTt −i + ∑r α 13 INFt −i + U 1t ........................................(1)
m
EXTt = i∑ α 21 EXT−i +i =∑ α 22 INTt −i +i =∑ α 23 INFt −i + U 2t .....................................(2)
=1
m
t 1
n r
1
INFt = ∑ α 31 INF t −i+ ∑1α 32 INTt −i + ∑1α 33 EXTt −t + U 3t ........................................(3)
i =1 i= i=
i =1 t −i i =1 i =i
where: INT is short term interest rate (a proxy for monetary policy stance), EXT is exchange rate and
INF is inflation rate (proxy by consumer price index). U1t, U2t and U2t are the disturbances term are
assumed to be uncorrelated with white noise properties N(0,σ2). Equation (1) to (3) can be expressed in
a reduced form as:
X t = α + B1 X t −1 + B 2 X t − 2 + B 3 X t −3 + ........ + B q X t − k + u t .................... ......................(4)
X t = [INT EXT INF ]
1
Where:
Equation (3) can bekwritten more compactly as:
X t = α + B1 ∑ X t = j + ε t .....................................................................................(5)
j =1
X t is a 3 x1 – dimensional Vector of endogenous variables of the model, α is a 3 x1 - dimensional
vector of constant and B1 is 3 x 3 dimensional autoregressive coefficient matrices of estimable
parameter and ε t is k-dimensional vector of the stochastic error term normally distributed with white
noise properties N(0,σ2).
The estimation of equation (5) requires appropriate estimation techniques to ensure proper VAR model
specification. Therefore, it is necessary to examine the properties of the data for estimation and the co-
integration, prior to the granger causality analysis.
4. Empirical Result
4.1 Unit Root Test
This study commence it empirical analysis by first testing the properties of the time series, used for
analysis. This is important because most macroeconomic time series exhibit non-stationarity behaviour in
their level form, which often poses a serious problem to econometric analysis, leading to spurious result if
appropriate measures are not taken. To guard against spurious result, this study took caution by checking
the properties of the variables via the Augmented Dickey-Fuller (ADF) and Philip Perron (PP) test. Using
these tests, table 1 revealed that all the variables were non-stationary at their level form, thereby leading to
test at first differences, which revealed that all the variables are stationary at first difference, that is,
integrated of order one I(1). After establishing stationarity, next is the examination of the co-integration
relationship among the variables.
4.2 Co-integration Rank Test
To have confirmed the stationary of the variables at 1(1), the study proceeds to examine the existence of
co-integration among the variables. The Johansen multivariate co-integration technique was adopted rather
than the Engel-Granger techniques. This was based on two reasons. First, the variables for analysis are I(1)
series, which is a pre-condition for the adoption of the Johansen technique and secondly, the models are
multi-variate models as specified in equation (2) and (4) above, consequently there is the possibility of
having more than one co-integrating vector in the model. This is against the Engel-granger technique which
is only suitable for testing co-integration between two variables. The results obtained from the Johansen
multivariate co-integration method were summarized in table 2. It was observed from table 2, the null
hypothesis of no co-integration, that is, r=0 was rejected in both the trace statistics and the maximum eigen-
value statistics. The statistical values of these tests were greater than their critical values. However, the null
hypothesis of no co-integration, that is r≤1 could not be rejected in both the trace statistics and the
maximum eigen-value statistics, because their values were less than the critical values, implying that there
are at least one co-integrating vector among the series.
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4.3 Causality Test
The VECM causality result presented in table 3 revealed the causal nexus among monetary policy,
exchange rate and inflation rate (proxy by consumer price index). The result showed that the error
correction term for co-integrating equation with short term interest rate (INT) as a dependent variable is
significant at one percent, but the sign is positive (not correct). In addition, interest rate revealed an
evidence of causality with exchange rate and inflation rate in the short run.
The coefficient of error correction term with exchange rate as a dependent variable is observed to be
statistically significant at five percent, implying that there exists a strong long run relationship running
from interest rate and inflation rate to exchange rate. More so, inflation rate revealed an evidence of
causation with exchange rate in the short run while no evidence of causality was observed in the short run
from interest rate to exchange rate. With respect to inflation as a dependent variable, the error correction
term was observed to be insignificant, implying that no existence of long run causality was observed from
inflation rate to the short term interest rate and exchange rate. However, in the short run, it was revealed
that a unidirectional causation runs from exchange rate to inflation rate while no causality was observed
from the interest rate to exchange rate.
An important observation from the VECM result is that the finding was in support of the co-integration
result, that only one co-integrating equation exists in the long run. Apart from the above, a theoretical
transmission mechanism of the causal nexus among monetary policy (INT), exchange rate (EXT) and
inflation rate (INF) could be inferred from table 3. Figure 1 below presents a theoretical schema for the
nexus on monetary policy (INT), exchange rate (EXT) and inflation rate (INF). The causal linkage below
showed that it is changes in exchange rate and inflation rate that cause changes in short term interest rate
and not otherwise. Furthermore, a bi-directional causality was observed between exchange rate and
inflation rate. The implication of the observation from figure1 is that changes in exchange rate influences
inflation rate which ultimately causes a change in monetary policy stance. Similarly, changes in inflation
rate influences the exchange rate which ultimately prompts a reaction from the monetary authority by
changing monetary policy stance. An important implication that can be drawn from theoretical schema
below is that it is changes in macroeconomic variables such as exchange rate and inflation rate that causes a
change in monetary policy stance and not otherwise.
5. Conclusion and Policy Recommendation
This study examined the nexus among monetary policy, exchange rate and inflation rate in Nigeria for the
period spanning 1970 to 2010. Although studies have investigated the impact of individual effect of
monetary policy on exchange rate and inflation rate, however these studies failed to take into cognizance
the nature of causality among these variables. The result from the VECM estimate showed that in the short
run, a uni-directional causation exist from exchange rate and inflation rate to interest rate while a bi-
directional causality exist form inflation rate to exchange rate. In addition, no evidence of causality was
observed in the short run from short term interest to exchange rate and from interest rate to inflation rate.
The theoretical transmission nexus deduced from the VECM estimate further revealed that changes in
macroeconomic variables such as exchange rate and inflation rate that causes a change in monetary policy
stance and not otherwise. Based on these findings, this study recommends appropriate control and
management of both the exchange rate and inflation rate.
References
Amarakoon, B. (2009), “The Impact of Global Financial and Economic Crisis on Africa: Transmission
Channels and Policy Implications”, International Conference on “Rethinking African Economic Policy in
Light of the Global Economic and Financial Crisis” held in Nairobi, Kenya on 6‐8 December 2009.
66
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Vol 3, No 3, 2012
An, L. & Sun, W. (2008), “Monetary Policy, Foreign Exchange Intervention, and the Exchange Rate: The
Case of Japan”, International Research Journal of Finance and Economics, ISSN 1450- 2887. Issue 15
Berument, H. & Pasaogullari, M. (2003), “Effects of the Real Exchange Rate on Output and Inflation in
Turkey”, The Development Economies, XLI-4:401-35
CBN (2008). Central Bank of Nigeria (CBN), Monetary Policy Department Series 1,
2008.CBN/MPD/Series/01/2008. www.cbn
Chimobi, O. P. & Uche, U. C. (2010), “Money, Price and Output: A Causality Test for Nigeria, American
Journal of Scientific Research, ISSN 1450-223X Issue 8(2010), pp.78-87.
Chuku, C. A. (2009), “ Measuring the Effects of Monetary Policy Innovations in Nigeria”, African Journal
of Accounting, Economics, Finance and Banking Research Vol. 5. No. 5 pp141-153
Engle, R. F. & Granger, C. W. J. (1987), “Co-integration and Error Correction: representation, Estimation
and Testing, Econometrica, 55: 251-276. http://dx.doi.org/10.2307/1913236
Folawewo, A. O. & Osinubi, T. S. (2006), “Monetary Policy and Macroeconomic Instability in Nigeria: A
Rational Expectation Approach”, Journal for Social Science, 12(2):93- 100
Holod, D. (2000), “The Relationship between Price Level, Money Supply and Exchange Rate in Ukraine”.
Jordaan, A. C. & Eita, J. H. (2007), “Export and Economic Growth in Namibia: A granger Causality
Analysis”, South African. Journal of Economics., 75: 540-547. http://dx.doi.org/10.1111/j.1813-
6982.2007.00132.x
Kara, A. & Nelson, E. (2002), “The Exchange Rate and Inflation in the UK”, External Monetary
Committee Unit Bank of England. Discussion Paper No. 11
Khan, M. (2008), “Short Run Effects of an Unanticipated Change in Monetary Policy: Interpreting
Macroeconomic Dynamics in Pakistan”, State Bank of Pakistan Research Bulletin Volume 4, Number 1.
Mete, F. & Adebayo, A. M. (2005), “Forecasting Inflation in Developing Economies: The Case of
Nigeria”, International Journal of Applied Econometrics and Quantitative Studies. Vol.2-4(2005).
Muço, M., Sanfey, P. & Taci ,A. (2004), “Inflation, Exchange Rates and the Role of Monetary Policy in
Albania”, European Bank for Reconstruction and Development.
Mukherjee, S. & Bhattacharya, R. (2011), “Inflation Targeting and Monetary Policy Transmission
Mechanisms in Emerging Market Economies, IMF Working Paper, WP/11/229
Nwosa, P. I., Agbeluyi, M. A. & Saibu, M. O. (2011), “Causal Relationships between Financial
Development, Foreign Direct Investment and Economic Growth: The Case of Nigeria”, International
Journal of Business Administration (IJBA) Vol. 2, No. 4, pp 93-102
Okhira, O. & Saliu, T. S. (2008), “Exchange Rate Variation and Inflation in Nigeria”.
Omotor, D.G. (2008), “Exchange Rate Reform and its Inflationary Consequences: The Case of Nigeria”,
EKONOMSKI PREGLED, 59(11688-716).
Rutasitara, L. (2004), “Exchange rate regimes and inflation in Tanzania. African Economic Research
Consortium, Nairobi, February 2004. Research Paper 138.
Shan, J. & Morris, A. (2002), “Does Financial Development Lead Economic Growth”? International
Review of Applied Economics. Vol. 16(2), pp 153-168. http://dx.doi.org/10.1080/02692170110118885
Yucel, F. (2009), “Causal Relationships between Financial Development, Trade Openness and Economic
Growth: The Case of Turkey”, Journal of Social Sciences 5(1): 33-42.
http://dx.doi.org/10.3844/jssp.2009.33.42
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Vol 3, No 3, 2012
Table 1: Unit Root Test
Augmented Dickey-Fuller (ADF) Test Phillip-Perron (PP) Test
Variables Level 1st Difference Status Level 1st Difference Status
Int -2.0219 -8.2221* I(1) -1.8063 -8.7375* I(1)
Ext 0.5675 -5.7789* I(1) 0.5448 -5.7778* I(1)
Inf -0.6340 -4.3870* I(I) -0.2907 -4.3613* I(1)
Lms 0.1795 -4.2816* I(1) 0.1113 -4.2547* I(1)
Lgdp -2.3272 -5.8304* I(1) -1.4238 -5.8463* I(1)
Source: Authors computation. Note: * implies stationarity at one percent level.
Notes: ext = exchange rate inf = inflation rate
lgdp = Log of gross domestic product int = interest rate
lms = Log of money supply.
Table 2: Summary of the Co-integration Tests
Trace Test Maximum Eigen value Test
Null alternative Statistics 95% critical Null alternative Statistics 95% critical
values values
r=0 r≥1 35.427 31.797 r=0 r=1 28.713 24.13
r≤1 r≥2 26.715 27.495 r≤1 r=2 19.467 20.23
r≤2 r≥3 7.248 10.841 r≤2 r=3 7.247 10.84
Source: Author’s Computation.
Table 3: Multivariate Granger Causality Test based on VECM
Independent Variables Dependent variables
INT EXT INT
-0.8114 0.0457
INT - [-0.4878] [0.6552]
-1.2325 - -0.0564
EXT [-5.3760]** [-8.5556]
21.8614 -17.7374
INF [4.3207] [-5.1193] -
0.6766 -0.3575 0.0169
ECT [3.2605]** [-3.1388]** [0.8539]
Source: Author’s Computation
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Figure 1: Theoretical Transmission Nexus on Monetary Policy, Exchange Rate and Inflation Rate
from Causality Results
INT
EXT INF
Source: Author’s Computation
69
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