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The Determinants of Real Exchange Rate Volatility in Nigeria

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  • Ajao Mayowa G
  • Igbekoyi Olushola E.

Abstract

The naira exchange rate depreciation and volatility is among the vast macroeconomic maladjustments which have unfolded in the Nigerian economy in the recent past. This paper investigates the determinants of real exchange rate volatility in Nigeria from 1981 through 2008. Having obtained the volatility of exchange rate through the GARCH (1,1) techniques, the ECM was used to examine the various determinants of exchange rate volatility in Nigeria, while the co-integration analysis reveals the presence of a long term equilibrium relationship between REXRVOL and its various determinants. Our empirical analysis further shows that openness of the economy, government expenditures, interest rate movements as well as the lagged exchange rate are among the major significant variables that influence REXRVOL during this period. This study recommends that the central monetary authority should institute policies that will minimize the magnitude of exchange rate volatility while the federal government exercises control of viable macroeconomic variables which have direct influence on exchange rate fluctuation.

Suggested Citation

  • Ajao Mayowa G & Igbekoyi Olushola E., 2013. "The Determinants of Real Exchange Rate Volatility in Nigeria," Academic Journal of Interdisciplinary Studies, Richtmann Publishing Ltd, vol. 2, March.
    • Handle: RePEc:bjz:ajisjr:66
    DOI: http://dx.doi.org/10.5901/ajis.2013.2n1p459
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    References listed on IDEAS

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    1. Hau, Harald, 2002. "Real Exchange Rate Volatility and Economic Openness: Theory and Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(3), pages 611-630, August.
    2. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
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