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The Monetary Model of Exchange Rate in Nigeria: an Autoregressive Distributed Lag (ARDL) Approach

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  • Evans, Olaniyi
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    Abstract

    This study examines the monetary model of exchange rate in Nigeria, using an Autoregressive Distributed Lag (ARDL) approach over the period 1998Q1 to 2012Q2. The estimation results show that there is long run relationship among variables of the monetary model of exchange rate for Nigeria. That is, the estimated coefficients of the money supply, income and interest rate differentials support the monetary exchange rate model. As well, the stability test of CUSUM shows that there exists a significant and stable monetary model of exchange rate determination for Nigeria. Therefore, this study recommends that market participants in the foreign exchange market may monitor and forecast future exchange rate movements using the money supplies, incomes and interest rates variables.

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    File URL: http://mpra.ub.uni-muenchen.de/52457/
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    Bibliographic Info

    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 52457.

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    Date of creation: Dec 2013
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    Handle: RePEc:pra:mprapa:52457

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    Keywords: monetary model; exchange rate; Autoregressive Distributed Lag; money supply; income and interest rate differentials;

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    1. Sovannroeun SAMRETH & Dara LONG, 2008. "The Monetary Model of Exchange Rate: Evidence from the Philippines Using ARDL Approach," Economics Bulletin, AccessEcon, vol. 6(31), pages 1-13.
    2. repec:ebl:ecbull:v:6:y:2008:i:31:p:1-13 is not listed on IDEAS
    3. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
    4. Chien-Chung Nieh & Yu-Shan Wang, 2005. "ARDL Approach to the Exchange Rate Overshooting in Taiwan," Review of Quantitative Finance and Accounting, Springer, vol. 25(1), pages 55-71, August.
    5. Frenkel, Jacob A, 1976. " A Monetary Approach to the Exchange Rate: Doctrinal Aspects and Empirical Evidence," Scandinavian Journal of Economics, Wiley Blackwell, vol. 78(2), pages 200-224.
    6. Frankel, Jeffrey A, 1979. "On the Mark: A Theory of Floating Exchange Rates Based on Real Interest Differentials," American Economic Review, American Economic Association, vol. 69(4), pages 610-22, September.
    7. Rapach, David E. & Wohar, Mark E., 2002. "Testing the monetary model of exchange rate determination: new evidence from a century of data," Journal of International Economics, Elsevier, vol. 58(2), pages 359-385, December.
    8. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November.
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