Fiscal dominance and exchange rate stability in Nigeria

This study investigates fiscal dominance and exchange rate stability in Nigeria. The period of investigation spanned 1981q1–2018q4, and the Structural Vector Autoregression (SVAR) technique was employed to test the fiscal dominance hypothesis and further examine the shock transmission effects of fiscal deficit components such as budget deficit and public debt on exchange rate movement in Nigeria. As a robustness, Autoregressive Distributed Lag (ARDL) technique was employed to analyse the shock transmission effects of these components on the movement of exchange rate in Nigeria. More so, granger causality test was conducted to trace the direction of causality among the fiscal deficit components and the exchange rates. The results show that budget deficit and changes in exchange rates in Nigeria have bi-causal relationship, while public debt could not granger cause exchange rate movement in the country. The SVAR estimates suggests that exchange rate movement in Nigeria reacted only to the shock effects of financial openness and the ARDL results indicate that both public debt and budget deficit have destabilizing effects on exchange rates in Nigeria.

Impact of Interest Rate Differential and Exchange Rate Movement on the Dynamics of Nigeria’s International Private Capital Flows

The study examines the impact of interest rate differential and exchange rate movement on the dynamics of Nigeria’s international private capital flows from 2010Q1 to 2019Q4. It uses the interest rate parity theory and the Markov Switching Time Varying Transition Probability Modelling approach. Findings show that interest rate differential does not explain the dynamics of aggregate capital and Foreign Direct Investment (FDI) flows, but significantly explains Foreign Portfolio Investment (FPI) flows. Also, Movement in real exchange rate is significant in explaining outflows and inflows in FPI, and inflows in FDI, but neutral to aggregate capital flows. The study concludes that deviations from interest rate parity provides opportunities for interest rate and currency arbitrage in Nigeria but using aggregate capital flows mask this evidence. The study therefore recommends that the CBN should focus on exchange rate stabilization policies, so as not only to discourage FPI reversal but to also enhance FDI inflow. This can be done by putting in place foreign reserve accretion measures to boost the ability of the CBN to defend the Naira. The new policy initiative on remittances is a right step in the right direction as it could boost external reserve.

OIL PRICE BEHAVIOUR, EXCHANGE RATE MOVEMENT AND THE COVID-19 PANDEMIC IN NIGERIA: ANALYSIS OF THE FIRST THREE QUARTERS OF 2020

This paper evaluates the response of oil price and exchange rate to the corona virus pandemic shock aside from the link between oil price and exchange rate for the first three quarters of 2020 in Nigeria. The theoretical framework emanates from the informal approach and the terms of trade channels. Using VAR cointegration approach, results show existence of long run relationship among the oil price, exchange rate movement and the corona virus indicators based on Max-Eigen and Trace test statistic. End of first quarter oil price, discharge rate and fatality rate negatively relate with current exchange rate. First quarter exchange rate and fatality rate positively relates to oil price behaviour in the third quarter while end of first quarter discharge rate increase fosters oil price decline. First quarter spread rate increase gradually reduces oil demand and the price in the third quarter. All corona virus indicators and exchange rate variable Granger Cause current oil price. Diversification is key to widen export base and increase foreign exchange and stability. Policy measures to sustain the economy in the post COVID-19 and beyond are necessary for long term development.

EFFECTS OF EXCHANGE RATE MOVEMENTS ON EXPORT OF SOME SELECTED AGRICULTURAL PRODUCTS IN EMERGING AFRICAN COUNTRIES

This study investigates the effect of exchange rate movement on export of five selected agricultural products, in five emerging countries in Africa. Autoregressive Distributed Lag (ARDL) method was employed to analyse the data spanning 1995 to 2015. It was found that, in the short run, exchange rate has a mixed effect on the product across countries, that is, in some products and countries, exchange rate affects export positively, while in some countries and product exchange rate movement has a negative effect on export. Further, exchange rate does not have long run effect on sugar and fruits and nuts in most of the countries. Consequently, it is recommended that government, in countries where exchange rate depreciation increases export, should maintain depreciation. Further, there should be provision of adequate infrastructure that will enhance agricultural production. In the same vein, interest rate on loans given to farmers should be minimal, so as to encourage borrowing to finance agricultural production. This recommendation is mostly relevant to countries where interest rate affects export negatively.

Exchange Rate Pass-through (ERPT) in Oil Producing Economy: Evidence from Nigeria

This paper examines the pass-through of exchange rate to domestic prices in the context of oil producing economy. Essentially, the study utilizes an ARDL Bound cointegration test approach to determine the short-run and long-run dynamic of the pass-through. More so, it reflects the magnitude and the direction of the pass-through via Toda-Yamamoto VAR approach. The economic outcome of this study contributes to debate on the extent of pass-through of exchange rate and provides solution to intellectual puzzle on the impact of transmission of exchange rate movement to domestic prices in oil dependent economies

Nigeria’s Fiscal Performance: Exploring the Role of Exchange Rate

The paper offers empirical justifications for the instrumentality of external sector in influencing the fiscal position of a country through the exchange rate. In the study, ARDL bounds test approach to cointegration analysis is adopted to examine the long run and short run relationship between exchange rate and fiscal performance in Nigeria. The validity of the findings is based on time series data between 1981 and 2017. The emerging evidence reveals that the exchange rate movement has a substantial influence on the fiscal performance, as there exists a significant adverse relationship between exchange rate and fiscal deficit in the long run as well as in the short run, while the association between exchange rate and public debt is found to be significantly positive in both periods. Empirical elucidations posit that an appreciation of the exchange rate could lead to decreasing fiscal deficits. However, the exchange rate appreciation might not induce a reduction in public debt, as it could stimulate demand for loanable funds by the government, although such effect could be mitigated through strategic investment policy and subsidized funding schemes to aid domestic production. Given that fiscal performance is considerably driven or constrained by the exchange rate movement, the study suggests that developing a strategic framework for ensuring a realistic exchange rate and the mitigation of regular fluctuations or correcting inappropriate exchange rate is crucial.