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Monetary exchange rate model as a long-run phenomenon: evidence from Nigeria

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  • Adawo, Monday A.
  • Effiong, Ekpeno L.

Abstract

How well does the monetary exchange rate model explain exchange rate behaviour in Nigeria? Using the Johansen -Juselius (1990) and Johansen (1991) cointegration technique, this paper examines the long-run validity of the monetary exchange rate model in Nigeria for the flexible exchange rate regime with quarterly data covering the period 1987 to 2008. We found a unique long-run relationship between the nominal exchange rate and the traditional monetary fundamentals (money supply, output and interest rate differentials). The estimated cointegrating coefficients are theoretically consistent with the monetary model and statistically significant exception of the output differential. In particular, this evidence supports strongly the validity of the monetary exchange rate model for Nigeria and also its relevance to modelling the naira-US dollar exchange rate movement.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 46407.

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Date of creation: 05 Feb 2013
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Handle: RePEc:pra:mprapa:46407

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Keywords: Exchange rate; Monetary fundamentals; Monetary exchange rate model; Cointegration; Nigeria;

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  22. repec:ebl:ecbull:v:6:y:2008:i:31:p:1-13 is not listed on IDEAS
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