Foreign Exchange Market Intervention and Exchange Rate Stability: An Empirical Anayisis for Nigeria

The essential roles played by exchange rate on general macroeconomic stability has attracted the Central Bank of Nigeria (CBN) to intervene in the foreign exchange market, in order to smoothen exchange rate volatility, among other goals. The study to examine the impact of foreign exchange market intervention on stability of exchange rate in Nigeria with a monthly time series data from 2000M1 to 2020M12. The research employs the use of Autoregressive Distributive Lag approach (ARDL) of analysis. The result indicates that the currency interventions policy of the CBN in Nigeria is effective and exerts significant impact on the exchange rate stability of Naira in both in the short and long-run within the period under investigation. We, therefor, recommend that the monetary authority should continue to employ the usage of stock of foreign reserves in supporting the exchange rate by increasing funding of the operations in foreign exchange market.

Imported or Home Grown? The 1992-3 EMS Crisis

Using newly assembled data on foreign exchange market intervention, we construct a daily index of exchange market pressure during the 1992-3 crisis in the European Monetary System. Using this index, we pinpoint when and where the crisis was most severe. Our analysis focuses on a neglected factor in the crisis: the role of the weak dollar in intra-EMS tensions. We provide new evidence of the contribution of a falling dollar-Deutschmark exchange rate to pressure on EMS currencies.

Book Reviews

Jeffry Frieden of Harvard University reviews “Strained Relations: US Foreign-Exchange Operations and Monetary Policy in the Twentieth Century”, by Michael D. Bordo, Owen F. Humpage, and Anna J. Schwartz. The Econlit abstract of this book begins: “Explores the evolution of US policy regarding currency market intervention and the interaction of currency market policy with monetary policy, and explores this evolution by drawing on foreign exchange transactions conducted through the Federal Reserve Bank of New York between 1962 and 1995. Considers how changing economic and institutional circumstances and political and bureaucratic factors affected foreign exchange policy. Discusses the evolution of US foreign exchange market intervention—thesis, theory, and institutions; exchange market policy in the United States—precedents and antecedents; introducing the Exchange Stabilization Fund, 1934-61; US intervention during the Bretton Woods era, 1962-73; US intervention and the early dollar float, 1973-81; US foreign exchange market intervention during the Volcker-Greenspan era, 1981-97; lessons from the evolution of US monetary and intervention policies; and foreign exchange market operations in the twenty-first century.” Bordo is a Board of Governors Professor of Economics at Rutgers University. Humpage is a senior economic advisor in the Research Department of the Federal Reserve Bank of Cleveland. The late Schwartz was a research associate of the National Bureau of Economic Research.