Exchange Rate Deregulation and Nigeria’s Industrial Output (1970-2015)AJHSSR Journal
The study examined the effect of exchange rate deregulation on the industrial output of Nigeria
over the period 1970 – 2015. Data for the study comprising Nigeria‟s Industrial Sector‟s Output, Exchange Rate,
Capacity Utilization and Inflation Rate were sourced from Central Bank of Nigeria (CBN) Statistical Bulletin
2015 edition. The data were analyzed using Error Correction Model and Ordinary Least Squares technique. The
result of the analysis revealed that exchange rate deregulation impacted positively and significantly on Industrial
output over the long run period. The dummy variable, which was introduced in the data to segment pre-SAP and
post-SAP periods also showed that exchange rate deregulation was beneficial to the industrial sector. In
conclusion, the study recommended that exchange rate should continue to be deregulated and closely monitored
to discourage rent-seekers and price arbitrage. Also, the government should support export-led growth,
particularly in provision of incentives and soft loans to aid in the export of locally produced industrial outputs.
In addition, government should create a favorable and enabling environment for production such as constant
supply of electricity and good road networks.
impact of monetary policy on economic growth: a case study of south Africa
ini hasil diskusi bersama untuk menyelesaikan studi kasus makroekonomi, khususnya kebijakan moneter
Economic policy refers to actions governments take in economic fields like monetary policy. Monetary policy uses tools like interest rates, cash reserve ratios, and open market operations by a central bank to influence the money supply and stabilize prices. The goals of economic policy are typically full employment, price stability, and economic growth.
This document is a presentation by Dr. D. Ravinder about monetary and fiscal policy in India. It discusses the objectives and instruments of monetary policy, including maintaining price stability and ensuring credit flows to productive sectors. It also discusses inflation and how monetary policy transmission occurs through interest rates, credit, asset prices, and exchange rates. The document then explains fiscal policy and its instruments, which include reducing government expenditure, increasing taxation, issuing public debt, and maintaining budget surpluses. It aims to use fiscal policy to influence aggregate demand and maintain economic stability.
The Monetary Policy is announced annually by the Reserve Bank of India to ensure price stability in the economy. It involves controlling money supply, interest rates, and inflation. The RBI also announces regulations for banks, financial institutions, and other entities it governs. The Monetary Policy differs from the Fiscal Policy in that it aims to impact the economy by adjusting money supply and interest rates, while the Fiscal Policy uses government spending and taxes. The objectives of the Monetary Policy are maintaining price stability and ensuring adequate credit to productive sectors of the economy.
The Reserve Bank of India announces the Monetary Policy annually in April to ensure price stability through controlling money supply, interest rates, and inflation. The policy is reviewed quarterly. It impacts the banking sector and financial institutions like banks, NBFCs, and foreign exchange markets. Monetary Policy differs from Fiscal Policy in that it controls the economy through money supply and interest rates rather than government spending and taxes. The objectives of Monetary Policy are maintaining price stability and adequate credit flow to support growth, employment, and currency stability based on economic conditions. Changes to interest rates impact individuals through effects on loans, savings, and investments.
The document summarizes Nigeria's Medium-Term Expenditure Framework and Fiscal Strategy Paper for 2010-2012. It outlines Nigeria's macroeconomic goals of achieving stability while supporting development. Key points include:
- Forecasts for GDP growth, inflation, exchange rates, oil production and prices that underpin budget projections.
- The 2010-2012 budget prioritizes infrastructure, education, agriculture and security. It aims to curb recurrent spending and maintain debt sustainability.
- Revenue projections assume oil production rises to 2.4 million barrels daily by 2012 but have downside risks from global prices and unrest. Non-oil targets may be unrealistic in a recession.
- Deficits are projected to remain below
Nigeria’s potential growth and output gap application of different econometri...Alexander Decker
This document summarizes a research paper that estimates Nigeria's potential output and output gap using different econometric filtering methods, including the Hodrick-Prescott filter, Baxter-King filter, and Christiano-Fitzgerald filters. The methods yielded different but similar results over time. According to the analyses, Nigeria's economy was overheated from 2004 to 2005 but operated below capacity from 2008 to 2009. The paper also found a relationship between inflation and estimated output gaps in Nigeria. Estimating potential output and the output gap can help inform monetary policy decisions by providing insights into future price levels and economic projections.
Exchange Rate Deregulation and Nigeria’s Industrial Output (1970-2015)AJHSSR Journal
The study examined the effect of exchange rate deregulation on the industrial output of Nigeria
over the period 1970 – 2015. Data for the study comprising Nigeria‟s Industrial Sector‟s Output, Exchange Rate,
Capacity Utilization and Inflation Rate were sourced from Central Bank of Nigeria (CBN) Statistical Bulletin
2015 edition. The data were analyzed using Error Correction Model and Ordinary Least Squares technique. The
result of the analysis revealed that exchange rate deregulation impacted positively and significantly on Industrial
output over the long run period. The dummy variable, which was introduced in the data to segment pre-SAP and
post-SAP periods also showed that exchange rate deregulation was beneficial to the industrial sector. In
conclusion, the study recommended that exchange rate should continue to be deregulated and closely monitored
to discourage rent-seekers and price arbitrage. Also, the government should support export-led growth,
particularly in provision of incentives and soft loans to aid in the export of locally produced industrial outputs.
In addition, government should create a favorable and enabling environment for production such as constant
supply of electricity and good road networks.
impact of monetary policy on economic growth: a case study of south Africa
ini hasil diskusi bersama untuk menyelesaikan studi kasus makroekonomi, khususnya kebijakan moneter
Economic policy refers to actions governments take in economic fields like monetary policy. Monetary policy uses tools like interest rates, cash reserve ratios, and open market operations by a central bank to influence the money supply and stabilize prices. The goals of economic policy are typically full employment, price stability, and economic growth.
This document is a presentation by Dr. D. Ravinder about monetary and fiscal policy in India. It discusses the objectives and instruments of monetary policy, including maintaining price stability and ensuring credit flows to productive sectors. It also discusses inflation and how monetary policy transmission occurs through interest rates, credit, asset prices, and exchange rates. The document then explains fiscal policy and its instruments, which include reducing government expenditure, increasing taxation, issuing public debt, and maintaining budget surpluses. It aims to use fiscal policy to influence aggregate demand and maintain economic stability.
The Monetary Policy is announced annually by the Reserve Bank of India to ensure price stability in the economy. It involves controlling money supply, interest rates, and inflation. The RBI also announces regulations for banks, financial institutions, and other entities it governs. The Monetary Policy differs from the Fiscal Policy in that it aims to impact the economy by adjusting money supply and interest rates, while the Fiscal Policy uses government spending and taxes. The objectives of the Monetary Policy are maintaining price stability and ensuring adequate credit to productive sectors of the economy.
The Reserve Bank of India announces the Monetary Policy annually in April to ensure price stability through controlling money supply, interest rates, and inflation. The policy is reviewed quarterly. It impacts the banking sector and financial institutions like banks, NBFCs, and foreign exchange markets. Monetary Policy differs from Fiscal Policy in that it controls the economy through money supply and interest rates rather than government spending and taxes. The objectives of Monetary Policy are maintaining price stability and adequate credit flow to support growth, employment, and currency stability based on economic conditions. Changes to interest rates impact individuals through effects on loans, savings, and investments.
The document summarizes Nigeria's Medium-Term Expenditure Framework and Fiscal Strategy Paper for 2010-2012. It outlines Nigeria's macroeconomic goals of achieving stability while supporting development. Key points include:
- Forecasts for GDP growth, inflation, exchange rates, oil production and prices that underpin budget projections.
- The 2010-2012 budget prioritizes infrastructure, education, agriculture and security. It aims to curb recurrent spending and maintain debt sustainability.
- Revenue projections assume oil production rises to 2.4 million barrels daily by 2012 but have downside risks from global prices and unrest. Non-oil targets may be unrealistic in a recession.
- Deficits are projected to remain below
Nigeria’s potential growth and output gap application of different econometri...Alexander Decker
This document summarizes a research paper that estimates Nigeria's potential output and output gap using different econometric filtering methods, including the Hodrick-Prescott filter, Baxter-King filter, and Christiano-Fitzgerald filters. The methods yielded different but similar results over time. According to the analyses, Nigeria's economy was overheated from 2004 to 2005 but operated below capacity from 2008 to 2009. The paper also found a relationship between inflation and estimated output gaps in Nigeria. Estimating potential output and the output gap can help inform monetary policy decisions by providing insights into future price levels and economic projections.
The Reserve Bank of India's Monetary Policy aims to ensure price stability through controlling money supply, interest rates, and inflation. It is announced annually and reviewed quarterly. The policy impacts banking, financial institutions, and markets through changes to interest rates and monetary measures. Its goals are maintaining price stability while ensuring credit flows to support growth, employment, and incomes. It differs from fiscal policy which uses government spending and taxes to influence output and prices.
This document provides an overview of macroeconomic policy tools including monetary policy and fiscal policy. It defines monetary policy tools such as open market operations, reserve requirements, and discount rates. It explains how expansionary and contractionary monetary policy impact the money market and goods market through changes in the money supply and interest rates. The document also defines fiscal policy tools such as government spending and taxes, and explains how expansionary and contractionary fiscal policy impact aggregate demand and output. Graphs and diagrams are used to illustrate these macroeconomic transmission mechanisms and effects on the AD-AS model.
Inflation is an increase in the aggregate money price level. In 2015, Vietnam has reached its lowest annual Consumer Price Index (“CPI”) in the last decade of 0.63%. This allowed the country to stimulate production and grow well for a short term. However, the inflation needs to increase to 4-5% for a long-term growth. Thus, the government has made some moves to spike up inflation at a control level in 2016. Along with this action, the increase in the world price of oil and the decrease in Vietnam’s food supply have contributed to the rise of inflation during the first five months of 2016. The inflation rate is projected to grow to more than 5% in the end of 2016 and will continuously grow in 2017.
The objectives of monetary policy are: 1) economic growth through proper utilization of resources and increasing income and living standards, 2) exchange stability by adjusting exchange rates to achieve a favorable balance of payments, and 3) price stability to improve confidence and ensure equal distribution of income and wealth. Other objectives include attaining full employment, controlling credit, reducing income and wealth inequalities, and creating/expanding financial institutions to mobilize savings.
The document discusses monetary and fiscal policies used to address inflation. It defines inflation and describes its stages and types. The causes of demand-pull and cost-push inflation are explained. Effects of inflation and instruments of monetary policy like bank rate, cash reserve ratio, and open market operations are summarized. Key differences between monetary and fiscal policy are highlighted. Objectives of monetary policy to maintain price stability and credit flow are stated.
Effecto exchange rate fluctuations on manufacturing sector in nigeriaAlexander Decker
This document summarizes a research paper that examines the effects of exchange rate fluctuations on Nigeria's manufacturing sector from 1985 to 2010. It uses variables like manufacturing GDP, foreign investment, employment, and exchange rates. The study found that exchange rates and foreign investment have a positive impact on manufacturing GDP. It recommends that the government promote export diversification, restrict imports of goods also made in Nigeria, and maintain a stable exchange rate to improve the manufacturing sector performance. The paper provides context on Nigeria's fluctuating exchange rates over time and reviews several other studies that also found exchange rates influence economic growth and agricultural exports.
The document discusses India's economic policies, including fiscal policy, monetary policy, foreign exchange policy, and foreign investment policy. It provides an overview of the objectives and instruments of each policy area. Fiscal policy aims to achieve desirable price levels, employment, income distribution, and capital formation through public expenditure and taxation. Monetary policy operates through money supply, interest rates, and credit availability to influence spending and prices. Foreign exchange policy moved from control to management with the introduction of the Foreign Exchange Management Act in 1999. Foreign investment policy aims to attract long-term foreign direct investment and allows foreign investors to establish wholly owned subsidiaries in most sectors.
This document discusses economic policies in India, including fiscal policy and monetary policy. It defines fiscal policy as the government's policy on public revenue, expenditure, and debt. The objectives of fiscal policy are to maintain economic stability and attain full employment. Monetary policy refers to measures to control money supply and achieve economic goals. The tools of monetary policy include bank rate, open market operations, and cash reserve ratio. Both quantitative and qualitative instruments are used to influence the quantity and allocation of credit in the economy.
Extant literature revealed that international trade plays a key role to address the economic phenomena and can help to earn foreign exchange. Despite the accruable benefits from international trade and the countrys huge oil export that account for about 90 of its foreign exchange earnings, Nigerias trade balance and exchange rate remain unfavourable. The persistent rise in Nigerias exchange rate and unfavourable trade balance in recent time warrants an empirical probe. This study therefore examines the effect of exchange rate, domestic income, foreign income, consumption expenditure, money supply and interest rate on trade balance using a secondary time series data covering a period of thirty years from 1991 2020. The study employed a regression technique of the Ordinary Least Square OLS . All data used were secondary data obtained from the statistical bulletin of Central Bank of Nigeria CBN and National Bureau of Statistics NBS annual publications. After determining stationarity of the study variables using the ADF Statistic, it was discovered that the variables were all integrated at level, first and second difference, and found out to be stationary at their first difference. The study also using Johansen Cointegration Test, found that there is a long run relationship between the variables. Hence, the implication of this result is that there is a long run relationship between trade balance and other variables used in the model. From the result of the OLS, it is observed that exchange rate, domestic income, foreign income and money supply have a positive and significant impact on trade balance in Nigeria. The study recommends that the government should fixed or peg on the exchange rate through the central bank. This will enable the government to buy and sell its own currency against the currency to which it is pegged. The government should strive to reduce inflation to make exports more competitive. The government should also enhance supply side policies to increase long term competitiveness. Edokobi, Tonna David | Okpala, Ngozi Eugenia | Okoye, Nonso John "Exchange Rate and Trade Balance Nexus" Published in International Journal of Trend in Scientific Research and Development (ijtsrd), ISSN: 2456-6470, Volume-5 | Issue-5 , August 2021, URL: https://www.ijtsrd.com/papers/ijtsrd45079.pdf Paper URL: https://www.ijtsrd.com/management/public-sector-management/45079/exchange-rate-and-trade-balance-nexus/edokobi-tonna-david
Monetary policy aims to control the money supply and credit in an economy to achieve objectives like full employment, investment growth, price stability, and balanced trade. Central banks use quantitative tools like bank rates, open market operations, and reserve requirements as well as qualitative tools like margin requirements and moral persuasion to influence monetary conditions. Economic indicators provide statistical data on the current state of the economy and can be leading, coincident, or lagging based on whether they change before, with, or after the overall economy. Coincident indicators reflect present conditions while leading indicators predict future performance and lagging indicators trail overall economic changes.
As a part of monetary policy statement for julyTayyaba Tariq
The document provides an analysis of the State Bank of Pakistan's new monetary policy by the governor. It discusses current economic imbalances like fiscal and current account deficits and high inflation. The governor increased the discount rate by 1% to 13% to contain credit demand, but noted this depends on the government retiring Rs84 billion in debt as promised. However, the document casts doubt on this, as the targeted tax revenue increase is unrealistic. It argues monetary policy effectiveness is limited given high import and food inflation, and that fiscal policy cooperation is needed to meaningfully address inflation.
The document discusses fiscal policy and monetary policy. Fiscal policy involves government spending and taxation and can have an expansionary, contractionary, or neutral stance. Methods of funding fiscal policy include taxation, seigniorage, borrowing, consumption of reserves, and asset sales. Fiscal policy aims to influence aggregate demand and achieve objectives like price stability and full employment. Monetary policy involves controlling the money supply, often targeting interest rates, to achieve goals like low inflation and unemployment. Tools of monetary policy include changing the monetary base, reserve requirements, discount window lending, and interest rates.
This document discusses stabilization policy, which aims to stabilize the economy and prevent fluctuations in output, employment, and prices that occur during business cycles. Stabilization policy uses monetary policy, fiscal policy, and international measures. Monetary policy involves tools like changing interest rates, reserve ratios, and open market operations to influence the money supply. Fiscal policy involves manipulating public expenditure, taxation, and debt to stimulate or contract the economy. International measures coordinate import/export policies and currency values with other countries. The overall goal is to counteract inflation during booms and spur growth during recessions.
Monetary policy is used by central banks to control the supply of money and regulate credit in order to promote economic growth and stability. There are two types: expansionary policy aims to reduce unemployment by increasing the money supply during recessions, while contractionary policy aims to reduce inflation by decreasing the money supply during expansions. The tools for changing the money supply include open market operations, interest rates, and reserve ratios.
The key direct tax proposals include increasing the surcharge on individuals earning over Rs. 1 crore to 15%, taxing dividend income over Rs. 10 lakhs at 10%, and introducing an equalization levy of 6% on non-resident companies for digital transactions. Notable corporate tax proposals include a concessional 10% tax rate for income from patents developed in India, 100% deduction of profits for 3 years for eligible startups, and phasing out of certain tax exemptions by 2020. The budget also introduced an income declaration scheme and a direct tax dispute resolution scheme.
The document discusses various economic policies and tools used by governments and central banks, with a focus on India. It describes monetary policy as aiming to promote economic growth while maintaining stability. The major objectives of monetary policy in India are outlined as promoting capital formation, regulating bank credit, encouraging monetization, achieving growth with stability, and maintaining balance of payments equilibrium. Tools of monetary policy discussed include bank rate policy, open market operations, cash reserve ratios, and qualitative credit controls.
Policy , Fiscal Policy and Monetary PolicyIkhlas Rahman
This document provides an overview of a presentation on policy, fiscal policy, and monetary policy. It includes the following key points:
1) The group members presenting are listed along with their student IDs.
2) The presentation will cover what policy is, why governments use it, what fiscal policy is, the tools of fiscal policy, and when governments apply fiscal and monetary policy.
3) Fiscal policy involves adjusting government spending and tax rates to influence the economy, while monetary policy controls the money supply through interest rates.
This presentation speaks in the concept of Macroeconomic policy and how it affects the economy. It discusses the basic concepts of macroeconomy, it's definition, types, features, effect, importance and weakness.
Macroeconomics (from the Greek prefix makro- meaning "large" + economics) is a branch of economics dealing with the performance, structure, behavior, and decision-making of an economy as a whole.
Currency fluctuations and inflation are the natural norm for most major economies. Numerous factors influence economic growth, including a country’s exchange rate system performance, the outlook for inflation, and interest rate differentials. These are the most significant factors that hinder the economic growth of every nation. As a result, this analysis investigates the impact of exchange rate and inflation on Nigeria’s growth performance from 1986 to 2021. Impulse response and variance decomposition were estimated. The real gross domestic product (RGDP) was used as a proxy for growth performance, while the inflation rate (IFNR), real exchange rate (REXR), and interest rate (INTR) were also used as proxies. The results of impulse response and variance decomposition estimates in the short-run (third quarter) and long-run (tenth quarter) show that real exchange rate D(REXR), INTR, and IFNR all have a positive impact on RGDP variation, with values of 13.38%, 31.88%, and 22.40%, respectively, in the third quarter. In the long run (the 10th quarter), REXR contributed approximately 28.76% of the variation in RGDP. The interest rate contributed 24.14%, while the IFNR has contributed about 28.27% of the variation in RGDP in the long run. Therefore, summing the contributions of REXR, INTR, and INFR to RGDP, these variables contributed about 81.17% of the variation in RGDP in the long run. Hence, the research concluded that REXR, INTR, and IFNR have a positive effect on growth performance as proxied by RGDP in Nigeria within the period of the research. The research recommended that the government should provide a policy that will reduce the excess growth of aggregate demand (AD) in the economy, which will reduce inflationary pressure, in order to achieve the sustainable development goals (SDGs) of 2030 in Nigeria, which include restoring economic growth and macroeconomic stability through macroeconomic variables such as the exchange rate, inflation, and other significant variables.
This is a lirature review sourced from Internet. It is not minezerfudimd
This document discusses the Two-Gap model of economic growth in Nigeria from 1970-2007 using vector autoregression analysis. It finds that foreign aid does not have a clear positive impact on economic growth in Nigeria, while foreign direct investment (FDI) does, but is volatile. The study also finds that filling trade gaps determined by aid requirements alone will not necessarily boost trade and growth. It reviews literature on the relationship between FDI and economic growth, finding mixed evidence. Determinants of FDI identified include market size, infrastructure, political stability, natural resources, and macroeconomic policies.
The Reserve Bank of India's Monetary Policy aims to ensure price stability through controlling money supply, interest rates, and inflation. It is announced annually and reviewed quarterly. The policy impacts banking, financial institutions, and markets through changes to interest rates and monetary measures. Its goals are maintaining price stability while ensuring credit flows to support growth, employment, and incomes. It differs from fiscal policy which uses government spending and taxes to influence output and prices.
This document provides an overview of macroeconomic policy tools including monetary policy and fiscal policy. It defines monetary policy tools such as open market operations, reserve requirements, and discount rates. It explains how expansionary and contractionary monetary policy impact the money market and goods market through changes in the money supply and interest rates. The document also defines fiscal policy tools such as government spending and taxes, and explains how expansionary and contractionary fiscal policy impact aggregate demand and output. Graphs and diagrams are used to illustrate these macroeconomic transmission mechanisms and effects on the AD-AS model.
Inflation is an increase in the aggregate money price level. In 2015, Vietnam has reached its lowest annual Consumer Price Index (“CPI”) in the last decade of 0.63%. This allowed the country to stimulate production and grow well for a short term. However, the inflation needs to increase to 4-5% for a long-term growth. Thus, the government has made some moves to spike up inflation at a control level in 2016. Along with this action, the increase in the world price of oil and the decrease in Vietnam’s food supply have contributed to the rise of inflation during the first five months of 2016. The inflation rate is projected to grow to more than 5% in the end of 2016 and will continuously grow in 2017.
The objectives of monetary policy are: 1) economic growth through proper utilization of resources and increasing income and living standards, 2) exchange stability by adjusting exchange rates to achieve a favorable balance of payments, and 3) price stability to improve confidence and ensure equal distribution of income and wealth. Other objectives include attaining full employment, controlling credit, reducing income and wealth inequalities, and creating/expanding financial institutions to mobilize savings.
The document discusses monetary and fiscal policies used to address inflation. It defines inflation and describes its stages and types. The causes of demand-pull and cost-push inflation are explained. Effects of inflation and instruments of monetary policy like bank rate, cash reserve ratio, and open market operations are summarized. Key differences between monetary and fiscal policy are highlighted. Objectives of monetary policy to maintain price stability and credit flow are stated.
Effecto exchange rate fluctuations on manufacturing sector in nigeriaAlexander Decker
This document summarizes a research paper that examines the effects of exchange rate fluctuations on Nigeria's manufacturing sector from 1985 to 2010. It uses variables like manufacturing GDP, foreign investment, employment, and exchange rates. The study found that exchange rates and foreign investment have a positive impact on manufacturing GDP. It recommends that the government promote export diversification, restrict imports of goods also made in Nigeria, and maintain a stable exchange rate to improve the manufacturing sector performance. The paper provides context on Nigeria's fluctuating exchange rates over time and reviews several other studies that also found exchange rates influence economic growth and agricultural exports.
The document discusses India's economic policies, including fiscal policy, monetary policy, foreign exchange policy, and foreign investment policy. It provides an overview of the objectives and instruments of each policy area. Fiscal policy aims to achieve desirable price levels, employment, income distribution, and capital formation through public expenditure and taxation. Monetary policy operates through money supply, interest rates, and credit availability to influence spending and prices. Foreign exchange policy moved from control to management with the introduction of the Foreign Exchange Management Act in 1999. Foreign investment policy aims to attract long-term foreign direct investment and allows foreign investors to establish wholly owned subsidiaries in most sectors.
This document discusses economic policies in India, including fiscal policy and monetary policy. It defines fiscal policy as the government's policy on public revenue, expenditure, and debt. The objectives of fiscal policy are to maintain economic stability and attain full employment. Monetary policy refers to measures to control money supply and achieve economic goals. The tools of monetary policy include bank rate, open market operations, and cash reserve ratio. Both quantitative and qualitative instruments are used to influence the quantity and allocation of credit in the economy.
Extant literature revealed that international trade plays a key role to address the economic phenomena and can help to earn foreign exchange. Despite the accruable benefits from international trade and the countrys huge oil export that account for about 90 of its foreign exchange earnings, Nigerias trade balance and exchange rate remain unfavourable. The persistent rise in Nigerias exchange rate and unfavourable trade balance in recent time warrants an empirical probe. This study therefore examines the effect of exchange rate, domestic income, foreign income, consumption expenditure, money supply and interest rate on trade balance using a secondary time series data covering a period of thirty years from 1991 2020. The study employed a regression technique of the Ordinary Least Square OLS . All data used were secondary data obtained from the statistical bulletin of Central Bank of Nigeria CBN and National Bureau of Statistics NBS annual publications. After determining stationarity of the study variables using the ADF Statistic, it was discovered that the variables were all integrated at level, first and second difference, and found out to be stationary at their first difference. The study also using Johansen Cointegration Test, found that there is a long run relationship between the variables. Hence, the implication of this result is that there is a long run relationship between trade balance and other variables used in the model. From the result of the OLS, it is observed that exchange rate, domestic income, foreign income and money supply have a positive and significant impact on trade balance in Nigeria. The study recommends that the government should fixed or peg on the exchange rate through the central bank. This will enable the government to buy and sell its own currency against the currency to which it is pegged. The government should strive to reduce inflation to make exports more competitive. The government should also enhance supply side policies to increase long term competitiveness. Edokobi, Tonna David | Okpala, Ngozi Eugenia | Okoye, Nonso John "Exchange Rate and Trade Balance Nexus" Published in International Journal of Trend in Scientific Research and Development (ijtsrd), ISSN: 2456-6470, Volume-5 | Issue-5 , August 2021, URL: https://www.ijtsrd.com/papers/ijtsrd45079.pdf Paper URL: https://www.ijtsrd.com/management/public-sector-management/45079/exchange-rate-and-trade-balance-nexus/edokobi-tonna-david
Monetary policy aims to control the money supply and credit in an economy to achieve objectives like full employment, investment growth, price stability, and balanced trade. Central banks use quantitative tools like bank rates, open market operations, and reserve requirements as well as qualitative tools like margin requirements and moral persuasion to influence monetary conditions. Economic indicators provide statistical data on the current state of the economy and can be leading, coincident, or lagging based on whether they change before, with, or after the overall economy. Coincident indicators reflect present conditions while leading indicators predict future performance and lagging indicators trail overall economic changes.
As a part of monetary policy statement for julyTayyaba Tariq
The document provides an analysis of the State Bank of Pakistan's new monetary policy by the governor. It discusses current economic imbalances like fiscal and current account deficits and high inflation. The governor increased the discount rate by 1% to 13% to contain credit demand, but noted this depends on the government retiring Rs84 billion in debt as promised. However, the document casts doubt on this, as the targeted tax revenue increase is unrealistic. It argues monetary policy effectiveness is limited given high import and food inflation, and that fiscal policy cooperation is needed to meaningfully address inflation.
The document discusses fiscal policy and monetary policy. Fiscal policy involves government spending and taxation and can have an expansionary, contractionary, or neutral stance. Methods of funding fiscal policy include taxation, seigniorage, borrowing, consumption of reserves, and asset sales. Fiscal policy aims to influence aggregate demand and achieve objectives like price stability and full employment. Monetary policy involves controlling the money supply, often targeting interest rates, to achieve goals like low inflation and unemployment. Tools of monetary policy include changing the monetary base, reserve requirements, discount window lending, and interest rates.
This document discusses stabilization policy, which aims to stabilize the economy and prevent fluctuations in output, employment, and prices that occur during business cycles. Stabilization policy uses monetary policy, fiscal policy, and international measures. Monetary policy involves tools like changing interest rates, reserve ratios, and open market operations to influence the money supply. Fiscal policy involves manipulating public expenditure, taxation, and debt to stimulate or contract the economy. International measures coordinate import/export policies and currency values with other countries. The overall goal is to counteract inflation during booms and spur growth during recessions.
Monetary policy is used by central banks to control the supply of money and regulate credit in order to promote economic growth and stability. There are two types: expansionary policy aims to reduce unemployment by increasing the money supply during recessions, while contractionary policy aims to reduce inflation by decreasing the money supply during expansions. The tools for changing the money supply include open market operations, interest rates, and reserve ratios.
The key direct tax proposals include increasing the surcharge on individuals earning over Rs. 1 crore to 15%, taxing dividend income over Rs. 10 lakhs at 10%, and introducing an equalization levy of 6% on non-resident companies for digital transactions. Notable corporate tax proposals include a concessional 10% tax rate for income from patents developed in India, 100% deduction of profits for 3 years for eligible startups, and phasing out of certain tax exemptions by 2020. The budget also introduced an income declaration scheme and a direct tax dispute resolution scheme.
The document discusses various economic policies and tools used by governments and central banks, with a focus on India. It describes monetary policy as aiming to promote economic growth while maintaining stability. The major objectives of monetary policy in India are outlined as promoting capital formation, regulating bank credit, encouraging monetization, achieving growth with stability, and maintaining balance of payments equilibrium. Tools of monetary policy discussed include bank rate policy, open market operations, cash reserve ratios, and qualitative credit controls.
Policy , Fiscal Policy and Monetary PolicyIkhlas Rahman
This document provides an overview of a presentation on policy, fiscal policy, and monetary policy. It includes the following key points:
1) The group members presenting are listed along with their student IDs.
2) The presentation will cover what policy is, why governments use it, what fiscal policy is, the tools of fiscal policy, and when governments apply fiscal and monetary policy.
3) Fiscal policy involves adjusting government spending and tax rates to influence the economy, while monetary policy controls the money supply through interest rates.
This presentation speaks in the concept of Macroeconomic policy and how it affects the economy. It discusses the basic concepts of macroeconomy, it's definition, types, features, effect, importance and weakness.
Macroeconomics (from the Greek prefix makro- meaning "large" + economics) is a branch of economics dealing with the performance, structure, behavior, and decision-making of an economy as a whole.
Currency fluctuations and inflation are the natural norm for most major economies. Numerous factors influence economic growth, including a country’s exchange rate system performance, the outlook for inflation, and interest rate differentials. These are the most significant factors that hinder the economic growth of every nation. As a result, this analysis investigates the impact of exchange rate and inflation on Nigeria’s growth performance from 1986 to 2021. Impulse response and variance decomposition were estimated. The real gross domestic product (RGDP) was used as a proxy for growth performance, while the inflation rate (IFNR), real exchange rate (REXR), and interest rate (INTR) were also used as proxies. The results of impulse response and variance decomposition estimates in the short-run (third quarter) and long-run (tenth quarter) show that real exchange rate D(REXR), INTR, and IFNR all have a positive impact on RGDP variation, with values of 13.38%, 31.88%, and 22.40%, respectively, in the third quarter. In the long run (the 10th quarter), REXR contributed approximately 28.76% of the variation in RGDP. The interest rate contributed 24.14%, while the IFNR has contributed about 28.27% of the variation in RGDP in the long run. Therefore, summing the contributions of REXR, INTR, and INFR to RGDP, these variables contributed about 81.17% of the variation in RGDP in the long run. Hence, the research concluded that REXR, INTR, and IFNR have a positive effect on growth performance as proxied by RGDP in Nigeria within the period of the research. The research recommended that the government should provide a policy that will reduce the excess growth of aggregate demand (AD) in the economy, which will reduce inflationary pressure, in order to achieve the sustainable development goals (SDGs) of 2030 in Nigeria, which include restoring economic growth and macroeconomic stability through macroeconomic variables such as the exchange rate, inflation, and other significant variables.
This is a lirature review sourced from Internet. It is not minezerfudimd
This document discusses the Two-Gap model of economic growth in Nigeria from 1970-2007 using vector autoregression analysis. It finds that foreign aid does not have a clear positive impact on economic growth in Nigeria, while foreign direct investment (FDI) does, but is volatile. The study also finds that filling trade gaps determined by aid requirements alone will not necessarily boost trade and growth. It reviews literature on the relationship between FDI and economic growth, finding mixed evidence. Determinants of FDI identified include market size, infrastructure, political stability, natural resources, and macroeconomic policies.
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).
11.[27 40]the impact of macroeconomic variables on non-oil exports performanc...Alexander Decker
This document summarizes a study that investigated the impact of macroeconomic variables (exchange rate, interest rate, government capital expenditure, government recurrent expenditure) on non-oil exports, the agricultural sector, manufacturing sector, and GDP in Nigeria from 1986-2010. The study used ordinary least squares regression and cointegration analysis. The results showed that exchange rate, government capital expenditure, and government recurrent expenditure were positively related to non-oil exports, agriculture, manufacturing, and GDP, while interest rate was negatively related. Based on these findings, the study recommends increasing investment in non-oil exports, agriculture, and manufacturing, as well as decreasing interest rates and increasing government expenditures.
Monetary Policy and Trade Balance in NigeriaYogeshIJTSRD
Nigeria apex bank Central Bank of Nigeria CBN has continued to battle with the job of reviving the ailing economy and putting it on the path of growth. The economy has witnessed unprecedented job loss, rising poverty level, accelerating inflation, sluggish economic growth and disequilibrium in the balance of trade. The study therefore examine the effect of monetary policy on trade balance in Nigeria. Specifically the study ascertained the extent to which inflation, demand deposit, liquidity ratio, exchange rate and interest rate have influenced trade balance in Nigeria using an econometric regression model of the Ordinary Least Square OLS . From the result of the OLS, it is observed that monetary policy rate, demand deposit, liquidity ratio and exchange rate have a significant positive impact on foreign trade in Nigeria. This means that increases in monetary policy rate, demand deposit, liquidity ratio and exchange rate, will lead to increase in foreign trade in Nigeria. On the other, inflation rate and interest rate has a significant negative impact on foreign trade in Nigeria, meaning that as inflation rate and interest rate increases, will be bring about a decline in foreign trade in Nigeria. Based on the findings of this study, the study recommends that the government should employ a contractionary monetary policy to fight inflation by reducing the money supply in the country through decreased bond price. inflation, demand deposit, liquidity ratio, exchange rate and interest rate have influenced trade balance in Nigeria. The government should intervene in the foreign exchange market in order to build reserves for themselves or provide them to the bank to help stabilize the exchange rate. The government should strive to improve trade performance in the short and long run. They should also reduce government spending and tax capital inflow. Edokobi, Tonna David | Okpala, Ngozi Eugenia | Okoye, Nonso John "Monetary Policy and Trade Balance in Nigeria" Published in International Journal of Trend in Scientific Research and Development (ijtsrd), ISSN: 2456-6470, Volume-5 | Issue-5 , August 2021, URL: https://www.ijtsrd.com/papers/ijtsrd45080.pdf Paper URL: https://www.ijtsrd.com/management/public-sector-management/45080/monetary-policy-and-trade-balance-in-nigeria/edokobi-tonna-david
1. The document examines the impact of exchange rate fluctuations on foreign trade in Nigeria from 1980-2014. It uses data from the Central Bank of Nigeria and Federal Bureau of Statistics to analyze the relationship between exchange rate, import, export, GDP, and price level.
2. Statistical analysis including OLS regression, cointegration, error correction model, and Granger causality tests were employed. The results show exchange rate fluctuations have a significant negative impact on foreign trade in Nigeria, explaining 56% of the variation in trade.
3. The error correction model also indicates about 55% of disequilibria from the previous year's foreign trade were corrected in the current year, suggesting exchange rate volatility creates instability in Nigeria
Currency fluctuations have an impact on Nigeria's balance of payments (BOP) because a weaker currency makes imports cheaper for other countries, improving the BOP. Nigeria has tried various exchange rate policies since 1958 but has struggled to achieve a favorable BOP position. While reforms by the Central Bank of Nigeria (CBN) have reduced the impact of currency fluctuations, more consistent actions are needed given Nigeria's volatile economy and all components of the BOP need consideration for policy decisions.
The Long Run Effect of Interest Rate and Money Supply on Petroleum Profit Tax...iosrjce
The study empirically examined the effect of interest rate and money supply on petroleum profit tax
(PET) in Nigeria. The study employed annual time series data from 1980 to 2013 collected from various issues
of Central Bank of Nigeria’s Statistical Bulletin. An Error Correction Mechanism (ECM) Model was adopted in
the analyses of the interaction among interest rate and money supply on petroleum profit tax. The granger
causality pairwise test was also conducted in determining the causal relationship among the variables. The
empirical results showed that, there was unidirectional causality between money supply and PET, money supply
has positive effect on PET in the short run but negative effect in the long run with (t=-1.35 , P<0.05)>0.05) respectively.
Exchange Rate Fluctuation and Real Sector Output in Nigeria A Disaggregated A...ijtsrd
This study examined the effect of exchange rate fluctuation on real sector output in Nigeria. It is the goal of every economy to have a stable rate of exchange with its trading partners. In Nigeria, this goal was not attained in spite of the fact that the country embarked on devaluation to promote export and stabilize the rate of exchange. Despite various efforts by the government to maintain a stable exchange rate, the Naira has depreciated throughout the 1980s to date. It is worrisome to note that Nigerian economy is under industrialized and its capacity utilization is also low. Specifically, this study examined the effect of exchange rate fluctuation on agricultural, industrial, building and construction, and trade sector outputs. It employed an ex post facto research design and the main statistical was the Auto Regressive Distributive Lag ARDL estimation technique using secondary data sourced from the Central bank of Nigeria statistical bulletins from 1986 2021. The result of the analyses revealed that exchange rate fluctuation had significant negative effect on agricultural sector output. Also, exchange rate was found to have a significant and negative effect on industrial, building and construction, and also trade sector output in Nigeria even though these effects were negative. The study concludes that although foreign exchange had significant effect on the real sector, such effect were negative thus displaying an inverse relationship. Sequel to these findings, there is a need for government at all levels federal, state, and local to actually invest in agriculture in an effort to match domestic demand and export to compete with crude oil for foreign exchange earnings. The Central Bank of Nigeria CBN is to provide foreign exchange relief measures for the acquisition of raw commodities that the nation naturally lacks while maintaining minimal exchange rate fluctuation to encourage local production by industries. Chrisphyna Ugochi Ahaneku | Ikenna Cyprain Egungwu | Amalachukwu Chijindu Ananwude "Exchange Rate Fluctuation and Real Sector Output in Nigeria: A Disaggregated Analysis (1986 - 2021)" 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/ijtsrd53838.pdf Paper URL: https://www.ijtsrd.com/economics/international-economics/53838/exchange-rate-fluctuation-and-real-sector-output-in-nigeria-a-disaggregated-analysis-1986---2021/chrisphyna-ugochi-ahaneku
Economic globalization its impact on the growth of non oil supply in nigeriaAlexander Decker
- The document examines the impact of economic globalization on the growth of non-oil supply in Nigeria from 1970-2011. It employs statistical analysis to analyze the relationship between non-oil supply growth and factors like economic openness, GDP, capital goods imports, and oil exports.
- The results show that while economic globalization had an insignificant impact on non-oil supply growth, factors like GDP, relative prices, capital goods imports, and exchange rates positively impacted non-oil supply. However, world income and oil exports negatively impacted non-oil supply growth.
- Despite policies aimed at diversifying the economy away from oil since the 1980s, non-oil exports as a percentage of total exports declined over the period
A survey of foreign exchange rate determinants in nigeriaAlexander Decker
The document presents a study that investigates factors that determine foreign exchange rates in Nigeria over the period 1960-2011. Regression analysis was used to analyze the relationship between the foreign exchange rate and several independent macroeconomic variables including GDP, balance of payments, external reserves, inflation, deposit rates, and lending rates. The results of the regression showed no statistically significant relationship between the foreign exchange rate and any of the independent variables over the time period analyzed.
International Journal of Business and Management Invention (IJBMI) is an international journal intended for professionals and researchers in all fields of Business and Management. IJBMI publishes research articles and reviews within the whole field Business and Management, new teaching methods, assessment, validation and the impact of new technologies and it will continue to provide information on the latest trends and developments in this ever-expanding subject. The publications of papers are selected through double peer reviewed to ensure originality, relevance, and readability. The articles published in our journal can be accessed online.
Crude oil price, stock price and some selected macroeconomic indicatorsAlexander Decker
This document analyzes the impact of crude oil prices, stock prices, and macroeconomic indicators like interest rates and exchange rates on Nigeria's economic growth from 1980-2010. Using techniques like Johansen cointegration, unit root tests, and error correction modeling, the study finds that crude oil prices, stock prices, and exchange rates have a significant influence on economic growth in Nigeria. Specifically, GDP growth is positively associated with stock prices and exchange rates, but negatively associated with crude oil prices and interest rates. The study recommends that Nigeria diversify its economy away from oil reliance and ensure transparency in financial markets to boost growth.
11.crude oil price, stock price and some selected macroeconomic indicatorsAlexander Decker
This document analyzes the impact of crude oil prices, stock prices, and macroeconomic indicators like interest rates and exchange rates on Nigeria's economic growth from 1980-2010. Using techniques like Johansen cointegration, unit root tests, and error correction modeling, the study finds that crude oil prices, stock prices, and exchange rates have a significant influence on economic growth in Nigeria. Specifically, GDP growth is positively associated with stock prices and exchange rates, but negatively associated with crude oil prices and interest rates. The study recommends that Nigeria diversify its economy away from oil reliance and ensure transparency in financial markets to boost growth.
Empirical study of the relationship between available forms of finance and pe...Alexander Decker
This document reports on a study that investigated the relationship between available forms of finance and the performance of intermediate cocoa processing firms in Lagos State, Nigeria. The study found a strong association (R=0.916) between available forms of finance and cocoa export performance. Available forms of finance were able to account for 84% of changes in cocoa export performance. Funds sourced through commercial banks in the form of loans had a strong effect on changes in firm performance, while retained profits had a moderate effect. Funding sourced from development banks had a less than satisfactory effect. The study recommends that policymakers route intervention funds through commercial banks but monitor interest rates charged.
The choice of the exchange policies in the primary commodity exporting countr...Alexander Decker
This document analyzes the exchange rate policies of Morocco and estimates the equilibrium real exchange rate of the Moroccan Dirham. It uses an autoregressive distributed lag model to estimate the long-run relationship between the real exchange rate and macroeconomic fundamentals like terms of trade, degree of openness, government expenditure, and net capital flows. The results suggest that Morocco's fixed exchange rate regime adopted in 1973 is not responsible for its trade deficit or low export growth, as the Dirham's value is close to its equilibrium level. However, other factors may be contributing to Morocco's low economic performance. The document examines theories on how exchange rates and macroeconomic variables interact and equilibrium exchange rates are estimated.
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Examining the behavior of exchange rate in nigeria an application of the pinto model
1. Journal of Economics and Sustainable Development www.iiste.org
ISSN 2222-1700 (Paper) ISSN 2222-2855 (Online)
Vol.5, No.15 2014
Examining the Behavior of Exchange rate in Nigeria: An
Application of the Pinto Model
Ferdinand C. Nwafor, Ph.D.
Baze University, Abuja, FCT
Email: nwafor.ferdinand@gmail.com
Abstract
A non-traditional model of exchange rate behavior, namely, the Pinto model is examined within the confines of a
reduced-form linear stochastic model with respect to the Nigerian naira and the U.S. dollar from 1980-2012. This
Pinto model hypothesizes a parallel rate that is assumed to reflect market fundamentals and influenced by the
following exogenous variables: an inflation rate, broad money supply, terms of trade, the official naira dollar
exchange rate as a policy variable, and the level of fiscal deficits. Applying the unit root tests on the
determinants suggest that the time series data might be spurious and thus necessitate co-integration application.
The results indicate a long run co-integrating vector between the naira-dollar parallel exchange rate and its
aforementioned determinants.
Keywords: Parallel Exchange Rate, Dutch-disease Syndrome, Non-traditional, Co-integration
1. Introduction
Although the bulk of the empirical research on exchange rate behavior has been done on developed or industrial
nations, very few of these studies have focused on applying a non-traditional model of exchange rate
determination. Therefore, the purpose of this study is to examine exchange rate behavior in Nigeria by deviating
from the conventional models of exchange rate determination in order to capture the relevant variables
influencing the Naira-Dollar exchange rate from 1980-2012. This period is significant because of the emergence
of the parallel exchange rate and the possibility and sustainability of exchange rate convergence in Nigeria. For
example, an investigation of official exchange rates (from IMF publications) and the black market exchange
rates (reported in World currency Yearbook and Pick’s Currency Yearbook) indicates a robust black market for
foreign currencies in Nigeria. To this end, there were substantial changes in the value of the Nigerian currency,
the Naira, which has been made partially convertible since August 1974. In addition, given oil exports and
remittances from Nigerians abroad, the openness of the Nigerian economy suggests an investment in the foreign
exchange market. This paper follows with a review of the Nigerian Economy, the Pinto model, methodology,
data analysis, and concluding remarks, respectively.
2. Review of the Nigerian Economy
The growth of the Nigerian economy in the 1970s could be traced to increase in oil exports, large public sector
spending, and massive borrowing from abroad. The sharp increases in oil revenue in 1973-74 and 1979-80
transferred a large amount of wealth to Nigeria, hence transformed the economy. For instance, in 1974-78 the
average growth rate of real GDP amounted to 6.5 percent per year. However, the dominance of oil in the
Nigerian economy provided evidence of “Dutch-disease syndrome” as the agricultural sector which is the main
non-oil tradable sector declined. In the Nigerian setting, the oil boom led to a shift in the domestic production
structure in favor of non-traded goods as traded goods were replaced by cheaper imports. During 1976-77, the
federal government budget was in deficit as a result of large spending sprees by the government initiated mainly
by the oil boom. For example, the government spending included the Udojie Awards of 1975 in which salaries of
civil servants were increased by over 100 percent. Also, between 1980 and 1983, oil export earnings reduced
from $23.4 billion to $9.9 billion due to worldwide recession. The result included large external and internal
deficit plus a decline in foreign reserves, even as the country began to borrow heavily accumulating about $6-7
billion of external payment arrears, part of which went to finance public development programs, such as the steel
industry. Consequently, Nigeria’s competitive position fell as the official value of the Nigerian currency, namely
the Naira (N), became detached from its value in trade as indicated by the rise in the parallel market premium.
From 1980-85, economic growth stalled as real output declined by over 10 percent. With real output and
domestic production falling, high inflation and the deteriorating foreign exchange reserves implied that the
monetary authorities could not continue to support the gradual realignment in the volume of the naira. Moreover,
the external payments position was worsened by rising interest rates in world financial markets, thereby
aggravating Nigeria’s interest payments on external debt from 0.6 percent of total export earnings in 1978 to 9.7
percent in 1985. In response to the economic crisis, the federal government adopted a strategy of economic
austerity measures such as strict foreign exchange controls, credit ceilings, and cuts in public investment
expenditures. Despite further tightening of the exchange controls and increases in import demand restrictions,
the fiscal positions of the federal and state governments continued to worsen.
188
2. Journal of Economics and Sustainable Development www.iiste.org
ISSN 2222-1700 (Paper) ISSN 2222-2855 (Online)
Vol.5, No.15 2014
The deteriorating economic conditions led to the adoption of the structural adjustment program (SAP)
designed with the assistance of the World Bank to be implemented from June 1986 to July 1988. The objective
of the SAP included the following: To restructure and diversify the productive base of the economy in order to
reduce dependence on oil and imports; to lay foundation for long-term economic growth by encouraging exports;
to strengthen fiscal balance of payments position; to improve the efficiency of the public sector; and to intensify
the efficacy of the private sector’s growth potential. In fact, the main strategies of the SAP included the adoption
of realistic exchange rate policy together with liberalization of the external trade and payments system and the
adoption of appropriate pricing policies in all sectors with more reliance on the market system and reduction in
complex administrative controls. As such, the Second-Tier Foreign Exchange Market (SFEM) was launched in
September 1986 in order to help correct the overvaluation of the naira exchange rate. In 1987, the SFEM and the
first-tier rate – which was kept for an interim period with its use reserved for debt service and public sector
payments to foreign organizations and embassies were combined as the Foreign Exchange Market (FEM) system.
This system was in place through the period indicated in this study.
The Nigerian economy has remained underdeveloped largely because of non-diversification of the
economy. Nigeria still derives 95 percent of its foreign exchange earnings from oil and approximately 80 percent
of its budgetary revenues depend on oil proceeds. After the debt agreement in 2000, Nigeria signed a debt
agreement with the Paris Club and received a $1 billion credit from the IMF to embark on economic reforms. In
2005, Nigeria received another debt restructuring agreement with the Paris Club to offset $18 billion of debt in
exchange for $12 billion in payments. In 2008, the Federal Government of Nigeria (FGN) started implementing
economic reforms – banking system reforms, removal of oil subsidies, and other interventions like in the areas of
power, aviation, and agriculture. In any case, a realistic exchange rate policy is critical to macroeconomic
reforms and stability.
3. The Pinto Model
As Ayogu (1995) postulates, the official exchange rate of Nigeria did not reflect economic fundamentals, given
that it is not co-integrated with the parallel rate. This implies that the parallel rate does reflect economic
fundamentals. Following Pinto (1987, 1989), the prices of traded goods in Nigeria are more likely to reflect the
parallel or black market rate. This assertion is based on the fact that exchange rate is rationed in the official
market where the naira is somewhat nonconvertible. On the other hand, the naira is freely convertible in the
parallel market. In view of the above, this study also examines the market-determined parallel exchange rate as
an endogenous variable, while the official rate is considered a policy variable and hence, treated as an exogenous
variable.
The Pinto model hypothesizes a parallel rate (PN$) that is determined by the following exogenous variables: an
inflation rate captured by the GDP price deflator, the money supply (M2), the terms of trade (TOT) in form of oil
prices, the official naira-dollar exchange rate, and the level of fiscal deficits (FD). The official naira exchange
rate is used as an explanatory variable in accordance with the CBN policy of achieving unification of parallel
and official rate. In line with the methodology of Kadhim and Almahmeed (1990), and Boughton (1987), the
following Pinto (1989) model is therefore augmented in a version of reduced-form linear stochastic model and
hereby posited as:
E = XB + U, (1)
Where, E = vector of observations of endogenous variable with
dimensions t x I;
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X = matrix of observations of exogenous variable
t x k; Xt1 = 1,…, n
B = vector of true disturbances with dimensions t x 1;
T = 1, 2, ---n, k = 1, 2, ---m, with n and m the number
of exogenous variables, respectively.
Thus, the model hypothesizes that the parallel naira-dollar exchange rate is determined by the following
exogenous variables: P, M, TOT, ND, and FD; where,
E = PN$, that is, the parallel naira-dollar exchange rate;
Xt1 = P, is the expected inflation rate
Xt2 = M, the monetary supply M2
Xt3 = TOT, the terms of trade
Xt4 = ND, the official naira-dollar exchange rate; and
Xt5 = FD, the fiscal deficit
Log-linearizing the model yields the following long-run parallel spot rate equation:
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InPN$t = bo + b1InPt + b2InM2t + b3InTOTt + b4InNDt + b5InFDt + Ut (3)
Where, Ut is an error term, which is assumed normally distributed with mean zero.
Theoretically, it is assumed that the expected coefficient of the ND is positive on the basis of the
expectations hypothesis. Essentially, any rise in exchange rate today is more likely to follow the same pattern in
the future. Moreover, the expected coefficient of ND is positive because of the CBN’s (Central Bank of
Nigeria’s) policy of maintaining the equilibrium value of the Naira relative to foreign currencies, especially from
early 1970s to mid of 1980s. In addition, the naira-dollar exchange rate is expected to be positive in other to
close the gap between the parallel market rate and the official market rate. In other words, any reduction in the
parallel market premium would eliminate the disequilibrium in the foreign exchange market with respect to the
naira-dollar exchange rate. Nevertheless, evidence has shown that prior to the introduction of the SAP and the
ensuing devaluation policy, a revaluation policy occurred. Thus, suggesting that the expected sign of ND could
be either positive or negative.
Moreover, the expected sign of the coefficient of TOT in general should be negative because an
improvement in the terms of trade of a country is bound to reflect favorably on its foreign exchange rate. In the
Nigerian situation, as more foreign exchange become available, less pressure is exerted on the exchange rate
premium. Since oil price is used as a proxy for TOT, it is expected that the coefficient would respond in a similar
manner as TOT.
Furthermore, the expected sign of the P coefficient is positive. Thus, as the inflation rate increases, the
naira exchange rate rises, leading to a depreciation of the spot parallel naira exchange rate (PN$).
Also, it is assumed that the fiscal deficit has ambiguous effects with respect to exchange rate
movements in Nigeria. Thus, an increase in fiscal deficit financed by external borrowing will initially induce an
appreciation due to influx of foreign exchange, whereas, a rise in fiscal deficit financed by government revenues
will lead to an increase in the parallel rate, a depreciation.
Finally, increase(decrease) in the money supply will cause a rise (decline) in imports, and therefore,
boost(lower) the demand for foreign currency (dollars), a(an) depreciation (appreciation) with a stable supply of
foreign currency (dollars). Essentially, the M2 coefficient is expected to be positive.
4. Methodology
This study assumes implicitly a regime of floating exchange rate with no government intervention, although this
assumption does not absolutely reflect the Nigerian case. Because the government occasionally intervenes in the
foreign exchange market, the floating rate system is managed. In testing the Pinto model (PM), a two-country
model of Nigeria and the United States is examined with respect to the naira-dollar exchange rate, where Nigeria
is the home country. The period covers 1980 to 2012 annually. Data sources include the Central Bank of Nigeria
(CBN), IMF International Financial Statistics (IFS) and World Economic Outlook.
In line with Gujarati and Porter (2009), regression models involving time series data sometimes give results that
are spurious – correlation could persist in non-stationary time series even if the sample is very large. In other
words, implying that the series might be non-stationary or contain unit root – a persistent time series process in
which current value is the same as lagging value, in addition to a weakly dependent disturbance (Wooldridge,
2006). The ADF (Augmented Dickey Fuller) test is employed to test for the existent of unit root. According to
Greene (2003), the ADF test for unit root is formulated as:
Wt = μ + ηWt-1 + jΔWt-I + μt ………….. (1)
Where the ADF unit root test hypothesizes a null of η = 0 versus an alternative η < 0. Thus, if the series contain
unit root, then co-integration is necessary.
Employing the co-integration methods of Johansen and Juselius (1990) given a VAR (Vector Autoregression)
model such as:
ΔXt = ΣГiΔXt-I + ΩXt-I + μ + Εt ……….. (2)
Where Xt is the vector of non-stationary variables ρ x 1 and i = 1,…….,k to yield co-integrating vectors or none
as captured by the trace and maximum eigenvalue tests.
As such, the Johansen and Juselius procedure verifies if the coefficient matrix Ω captures the fundamentals of
long run equilibrium consistent with the non-stationary variables. In essence, if 0 < rank Ω = г < ρ, then there are
matrices α and β of dimension ρ x г, where Ω =αβ and there are r co-integrating relations among elements of Xt,
where α and β are co-integration vectors and error correction parameters, respectively (Nwafor, 2008).
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5. Data Analysis
5.1 Ordinary Least Squares
Table 1: OLS Estimates
Dependent variable: PN$
No. of observations = 33
Variable Coefficient Std. Error t-Statistic Prob.
C -83. 72802 66 .58286 -1.2 57501 0 .2193
P1 0.907744 6.550395 0.138579 0.8908
M21 1.522196 11.78433 0.129171 0.8982
TOT1 39.00612 20.29789 1.921683 0.0653
ND1 23.00965 9.672550 2.378861 0.0247
FD1 -12.67620 7.855526 -1.613666 0.1182
R-squared 0.9 26965 Mean dependent var 66.7 5727
Adjusted R-squared 0.913440 S.D. dependent var 65.26625
S.E. of regression 19.20203 Akaike info criterion 8.910874
Sum squared resid 9955.382 Schwarz criterion 9.182967
Log likelihood -141.0294 Hannan-Quinn criter. 9.002425
F-statistic 68.53722 Durbin-Watson stat 0.927531
Prob(F-statistic) 0.000000
The Ordinary Least Squares (OLS) estimates show a fairly high R2 statistic, highly auto-correlated residuals as
evidenced in the low Durbin-Watson (d-w) statistic, and thus the t and F tests on the regression parameters are
likely to be spurious. Therefore, it seems that the OLS estimator is not converging in probability as the sample
size increases, and the t and F test statistics do not exhibit a defined asymptotic distribution, and the d-w statistic
converges towards zero. Most of the signs for the explanatory variables are in line with the theory, but evidence
shows that with the parallel rate and P, M2, TOT, ND, and FD might be integrated of order one, I(1), variables,
where the error term ut seems to be a non-stationary I(1) variable.
5.2 Unit Root Tests
A test of the time-series properties of the data using the Augmented Dickey Fuller (ADF) test indicates that all
the variables have unit roots when tested with a time trend andor a constant, except for the FD variable. That is,
the autoregressive distributed lag (ADL) functions of the variables are I(1) series (integrated of order one). This
implies that most of these variables are first-order homogenous and non-stationary and therefore, may show
some spurious correlations as shown in Table 2 below. Thus, co-integration test is necessary.
Table 2: ADF test Statistics for Unit Roots
Variable t-Statistic Critical Values
P -1.66 2.96
M2 0.21 2.96
TOT -1.96 2.96
ND1 1.79 2.96
FD -5.32. 2.96
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5.3 Co-integration
Table 3: Co-integration Tests
Sample (adjusted): 1982 2012
Included observations: 31 after adjustments
Trend assumption: Linear deterministic trend
Series: P1 M21 TOT1 ND1 FD1
Lags interval (in first differences): 1 to 1
Unrestricted Cointegration Rank Test (Trace)
Hypothesized Trace 0.05
No. of CE(s) Eigenvalue Statistic Critical Value Prob.**
None * 0.702213 77.75252 69.81889 0.0101
At most 1 0.463759 40.19986 47.85613 0.2154
At most 2 0.329487 20.88154 29.79707 0.3651
At most 3 0.198011 8.490449 15.49471 0.4145
At most 4 0.051833 1.649978 3.841466 0.1990
Trace test indicates 1 cointegrating eqn(s) at the 0.05 level
* denotes rejection of the hypothesis at the 0.05 level
**MacKinnon-Haug-Michelis (1999) p-values
Unrestricted Cointegration Rank Test (Maximum Eigenvalue)
Hypothesized Max-Eigen 0.05
No. of CE(s) Eigenvalue Statistic Critical Value Prob.**
None * 0.702213 37.55266 33.87687 0.0174
At most 1 0.463759 19.31832 27.58434 0.3903
At most 2 0.329487 12.39110 21.13162 0.5096
At most 3 0.198011 6.840471 14.26460 0.5082
At most 4 0.051833 1.649978 3.841466 0.1990
Max-eigenvalue test indicates 1 cointegrating eqn(s) at the 0.05 level
* denotes rejection of the hypothesis at the 0.05 level
**MacKinnon-Haug-Michelis (1999) p-values
Johansen co-integration indicates one co-integrating vector suggesting that the parallel rate is I(0). As such, the
equilibrium error is stationary and fluctuating within zero as illustrated above in table 3 by the trace and
maximum eigenvalue tests results.
6. Concluding Remarks
The exchange rate behavior in Nigeria as captured by the market fundamentals such as inflation, broad money
supply, terms of trade, the official naira dollar exchange rate, and fiscal deficits are somewhat co-integrating
with the parallel rate as hypothesized by the augmented Pinto model. Thus, the CBN should consider exchange
rate behavior not only in the context of traditional models but non-traditional models as envisaged by Pinto.
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REFERENCES
Ayogu, M. (1995). Empirical Studies of Nigeria’s Foreign Exchange Parallel Market I: Price Behavior and Rate
Determination. African Economic Research Consortium, Research Paper 41, Nairobi Kenya, Regal Press Kenya
Ltd.
Boughton, J. (1987). Tests of the Performance of Reduced-Form Exchange Rate Models. Journal of
International Economics 23, 41-56.
CBN (2013). Central Bank of Nigeria, Data and Statistics, Cenbank.org.
Greene, W. (2003). Econometric Analysis (5th Edition), Prentice Hall, New Jersey.
Gujarati, D. (1999). Essentials of Econometrics (2nd Edition) Irwin McGraw-Hill, New York.
Gujarati, D. and Porter D. (2008). Basic Econometrics (5th Edition), McGraw-Hill, New York.
International Monetary Fund (IMF) (1980-2013). International Financial Stati8stics Yearbooks and supplements.
IMF Press, Washington D.C.
IMF (2013). World Economic Outlook, Imf.org.
Johansen, S. and Juselius K. (1990). Maximum Likelihood Estimation and Inference on Cointegration – With
Applications to the Demand for Money. Oxford Bulletin for Economics and Statistics, 52, pp. 169-210.
Kadhim, M. and Almahmeed, M. (1990). Exchange Rate Determination in an Oil-Based Economy: The case of
Kuwait. Journal of Energy and Development, 15, 231-255.
Mackinnon, J. et al (1999). Numerical Distribution Function of Likelihood Ratio Tests for Co-integration.
Journal of Applied Econometrics, 14, 563-577.
Nwafor, F. (2008). Portfolio Balance Model of Exchange Rate Behavior: A Peso-Dollar Example. The IUP
Journal of Financial Economics, Vol. VI, No. 2, pp. 41-47.
Pinto, B. (1987). Nigeria During and After the Oil Boom: A Policy Comparison with Indonesia. The World Bank
Economic Review, Vol. 1, Issue 3, pp. 419-445.
Pinto, B. (1989). Black Market Premia, Exchange Rate Unification, and Inflation in Sub-Saharan Africa. The
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