IDEAS home Printed from https://ideas.repec.org/a/dug/actaec/y2017i6p253-266.html
   My bibliography  Save this article

Re-examining Exchange Rate Regimes and Inflation Nexus: An ARDL Analysis for Nigerian Case

Author

Listed:
  • David Mautin Oke

    (University of KwaZulu-Natal)

  • Koye Gerry Bokana

    (University of KwaZulu-Natal)

  • Adebowale Soluade

    (University of Lagos)

Abstract

This paper seeks to re-examine the effect of exchange rate regimes on inflation in Nigeria. This is pertinent because exchange rate has remained devastated in Nigeria while the problem of high inflation lingers. Contrary to most studies on Nigeria, we tested the stability of our inflation model. We used the Autoregressive Distributed Lag (ARDL) approach for our analysis. The result shows that the past one year value of exchange rate has a negative and significant impact on the current inflation rate. Inflation rate increased more during the fixed exchange regime compared to the floating exchange rate regime. During the floating exchange rate regime, as the exchange rate increases, the inflation rate decreases and vice versa. The implication is that the floating exchange rate regime policy is preferable for combating increases in inflation rate compared to the fixed exchange rate. In addition, the lags of money supply have a direct relationship with inflation rate. The past two years value of interest rate also has a direct relationship with inflation rate. It is necessary that future studies on Nigeria consider wider spectrums of exchange rate regimes than ours.

Suggested Citation

  • David Mautin Oke & Koye Gerry Bokana & Adebowale Soluade, 2017. "Re-examining Exchange Rate Regimes and Inflation Nexus: An ARDL Analysis for Nigerian Case," Acta Universitatis Danubius. OEconomica, Danubius University of Galati, issue 13(6), pages 253-266, DECEMBER.
    • Handle: RePEc:dug:actaec:y:2017:i:6:p:253-266
    as

    Download full text from publisher

    File URL: http://journals.univ-danubius.ro/index.php/oeconomica/article/view/4331/4326
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Guillermo A. Calvo & Carmen M. Reinhart, 2002. "Fear of Floating," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(2), pages 379-408.
    2. Patrick Honohan & Philip R. Lane, 2003. "Divergent inflation rates in EMU [‘European financial integration and equity returns: a theory-based assessment’]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 18(37), pages 357-394.
    3. Md. Sharif Hossain & Rajarshi Mitra, 2017. "The Determinants of Price Inflation in the United States: A Multivariate Dynamic Cointegration and Causal Analysis," Journal of Developing Areas, Tennessee State University, College of Business, vol. 51(1), pages 153-175, January-M.
    4. Hayat, Zafar & Balli, Faruk & Rehman, Muhammad, 2017. "The relevance and relative robustness of sources of inflation bias in Pakistan," Economic Modelling, Elsevier, vol. 63(C), pages 283-303.
    5. Zapata, Hector O. & Maradiaga, David Isaias & Pujula, Aude Liliana & Dicks, Michael R., 2011. "Recent Developments in Unit Root Tests and Historical Crop Yields," 2011 Annual Meeting, July 24-26, 2011, Pittsburgh, Pennsylvania 103871, Agricultural and Applied Economics Association.
    6. Bohl, Martin T. & Michaelis, Philip & Siklos, Pierre L., 2016. "Austerity and recovery: Exchange rate regime choice, economic growth, and financial crises," Economic Modelling, Elsevier, vol. 53(C), pages 195-207.
    7. Atish R Ghosh & Mahvash S Qureshi & Charalambos G Tsangarides, 2014. "On the Value of Words: Inflation and Fixed Exchange Rate Regimes," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 62(2), pages 288-322, June.
    8. Chhibber, Ajay, 1991. "Africa's rising inflation : causes, consequences, and cures," Policy Research Working Paper Series 577, The World Bank.
    9. Guisinger, Alexandra & Singer, David Andrew, 2010. "Exchange Rate Proclamations and Inflation-Fighting Credibility," International Organization, Cambridge University Press, vol. 64(2), pages 313-337, April.
    10. Clemens Kool & Alex Lammertsma, 2005. "Inflation Persistence under Semi-Fixed Exchange Rate Regimes: The European Evidence 1974–1998," Open Economies Review, Springer, vol. 16(1), pages 51-76, January.
    11. Perron, Pierre & Qu, Zhongjun, 2007. "A simple modification to improve the finite sample properties of Ng and Perron's unit root tests," Economics Letters, Elsevier, vol. 94(1), pages 12-19, January.
    12. Hausmann, Ricardo & Panizza, Ugo & Stein, Ernesto, 2001. "Why do countries float the way they float?," Journal of Development Economics, Elsevier, vol. 66(2), pages 387-414, December.
    13. Anonymous, 1962. "International Monetary Fund," International Organization, Cambridge University Press, vol. 16(3), pages 619-631, July.
    14. Anonymous, 1962. "International Monetary Fund," International Organization, Cambridge University Press, vol. 16(1), pages 230-231, January.
    15. Gary G. Moser, 1995. "The Main Determinants of Inflation in Nigeria," IMF Staff Papers, Palgrave Macmillan, vol. 42(2), pages 270-289, June.
    16. Serena Ng & Pierre Perron, 2001. "LAG Length Selection and the Construction of Unit Root Tests with Good Size and Power," Econometrica, Econometric Society, vol. 69(6), pages 1519-1554, November.
    17. Sérgio Lagoa, 2017. "Determinants of inflation differentials in the euro area: Is the New Keynesian Phillips Curve enough?," Journal of Applied Economics, Universidad del CEMA, vol. 20, pages 75-103, May.
    18. Lupi, Claudio, 2009. "Unit Root CADF Testing with R," Journal of Statistical Software, Foundation for Open Access Statistics, vol. 32(i02).
    19. Anonymous, 1962. "International Monetary Fund," International Organization, Cambridge University Press, vol. 16(4), pages 876-878, October.
    20. Thygesen, Niels, 1978. "Inflation and exchange rates : Evidence and policy guidelines for the European community," Journal of International Economics, Elsevier, vol. 8(2), pages 301-317, May.
    21. Josef C. Brada & José A. Méndez, 1988. "Exchange Rate Risk, Exchange Rate Regime and the Volume of International Trade," Kyklos, Wiley Blackwell, vol. 41(2), pages 263-280, May.
    22. Alberto Alesina & Alexander F. Wagner, 2006. "Choosing (and Reneging on) Exchange Rate Regimes," Journal of the European Economic Association, MIT Press, vol. 4(4), pages 770-799, June.
    23. Chhibber, Ajay & Shafik, Nemat, 1990. "Exchange reform, parallel markets, and inflation in Africa : the case of Ghana," Policy Research Working Paper Series 427, The World Bank.
    24. Sérgio Lagoa, 2017. "Determinants of Inflation Differentials in the Euro Area: Is the New Keynesian Phillips Curve Enough?," Journal of Applied Economics, Taylor & Francis Journals, vol. 20(1), pages 75-103, May.
    25. Aliyu, Shehu Usman Rano & Englama, Abwaku, 2009. "Is Nigeria Ready for Inflation Targeting?," MPRA Paper 14870, University Library of Munich, Germany, revised 26 Apr 2009.
    26. Jacob Opolot & Anita Mpagi, 2017. "Inflation Dynamics in Uganda: The role of disequilibria in the money and traded goods markets," Journal of Statistical and Econometric Methods, SCIENPRESS Ltd, vol. 6(1), pages 1-2.
    27. repec:bla:kyklos:v:41:y:1988:i:2:p:263-80 is not listed on IDEAS
    28. Ghanem Darine, 2012. "Fixed Exchange Rate Regimes and Inflation Performance: Evidence from MENA Countries," Review of Middle East Economics and Finance, De Gruyter, vol. 8(1), pages 1-30, August.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kimakova, Alena, 2008. "The political economy of exchange rate regime determination: Theory and evidence," Economic Systems, Elsevier, vol. 32(4), pages 354-371, December.
    2. Guisinger, Alexandra & Singer, David Andrew, 2010. "Exchange Rate Proclamations and Inflation-Fighting Credibility," International Organization, Cambridge University Press, vol. 64(2), pages 313-337, April.
    3. Levy Yeyati, Eduardo & Sturzenegger, Federico, 2010. "Monetary and Exchange Rate Policies," Handbook of Development Economics, in: Dani Rodrik & Mark Rosenzweig (ed.), Handbook of Development Economics, edition 1, volume 5, chapter 0, pages 4215-4281, Elsevier.
    4. Adam Geršl & Tomáš Holub, 2006. "Foreign Exchange Interventions Under Inflation Targeting: The Czech Experience," Contemporary Economic Policy, Western Economic Association International, vol. 24(4), pages 475-491, October.
    5. Couharde, Cécile & Grekou, Carl & Mignon, Valérie, 2022. "On the economic desirability of the West African monetary union: Would one currency fit all?," Economic Modelling, Elsevier, vol. 113(C).
    6. Singh, Tarlok, 2008. "Testing the Saving-Investment correlations in India: An evidence from single-equation and system estimators," Economic Modelling, Elsevier, vol. 25(5), pages 1064-1079, September.
    7. István Magas, 2018. "Financial Adjustment in Small, Open Economies in Light of the “Impossible Trinity” Trilemma," Financial and Economic Review, Magyar Nemzeti Bank (Central Bank of Hungary), vol. 17(1), pages 5-33.
    8. Ebenezer A. Olubiyi & Kubrat O. Kehinde, 2015. "Does Exchange Rate Affect Remittances in Nigeria?," The Review of Finance and Banking, Academia de Studii Economice din Bucuresti, Romania / Facultatea de Finante, Asigurari, Banci si Burse de Valori / Catedra de Finante, vol. 7(1), pages 031-045, June.
    9. Jonathan Scott Davis, 2017. "External debt and monetary policy autonomy," Revista ESPE - Ensayos Sobre Política Económica, Banco de la República, vol. 35(82), pages 53-63, April.
    10. Skorepa, Michal & Komarek, Lubos, 2015. "Sources of asymmetric shocks: The exchange rate or other culprits?," Economic Systems, Elsevier, vol. 39(4), pages 654-674.
    11. Carl Grekou & Cécile Couharde & Valérie Mignon, 2021. "On the desirability of the West African monetary union," Working Papers hal-04159755, HAL.
    12. J. Scott Davis & Ippei Fujiwara & Jiao Wang, 2018. "Dealing with Time Inconsistency: Inflation Targeting versus Exchange Rate Targeting," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 50(7), pages 1369-1399, October.
    13. Jeffrey Frankel, 2005. "Contractionary Currency Crashes In Developing Countries," CID Working Papers 117, Center for International Development at Harvard University.
    14. Kiyutsevskaya, Anna (Киюцевская, Анна) & Morgunov, Vyacheslav (Моргунов, Вячеслав) & Trunin, Pavel (Трунин, Павел), 2017. "Peculiarities of Exchange Rate Policy under the Floating Exchange Rate Regime in Developing Countries [Особенности Курсовой Политики В Рамках Режима Плавающего Валютного Курса В Развивающихся Стран," Working Papers 031722, Russian Presidential Academy of National Economy and Public Administration.
    15. Plümper, Thomas & Neumayer, Eric, 2011. "Fear of floating and de facto exchange rate pegs with multiple key currencies," LSE Research Online Documents on Economics 40052, London School of Economics and Political Science, LSE Library.
    16. J. Scott Davis, 2016. "Economic fundamentals and monetary policy autonomy," Globalization Institute Working Papers 267, Federal Reserve Bank of Dallas.
    17. Omar Barbiero, 2021. "The Valuation Effects of Trade," Working Papers 21-11, Federal Reserve Bank of Boston.
    18. repec:bdr:ensayo:v:35:y:2017:i:82:p:96-105 is not listed on IDEAS
    19. Dirk Steffen & Ingo Pitterle, 2004. "Spillover Effects of Fiscal Policy Under Flexible Exchange Rates," Econometric Society 2004 Australasian Meetings 286, Econometric Society.
    20. Mădălin Viziniuc, 2017. "Potential Gains from Cooperation Between Monetary and Macroprudential Policies: The Case of an Emerging Economy," Eastern European Economics, Taylor & Francis Journals, vol. 55(5), pages 420-452, September.
    21. Edward Ghartey, 2006. "Exchange Pressure, Sterilized Intervention and Monetary Policy in Ghana," EcoMod2006 272100031, EcoMod.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:dug:actaec:y:2017:i:6:p:253-266. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Daniela Robu (email available below). General contact details of provider: https://edirc.repec.org/data/fedanro.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.