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Effectiveness of Foreign Exchange Market Intervention in Nigeria (1970-2013)

Author

Listed:
  • Siba Dayyabu

    (Faculty of Economics, Accountancy and Management Sciences, Universiti Sultan Zainal Abidin, Gong Badak Campus, 21300, Kuala Terengganu, Terengganu, Malaysia)

  • Ahmad Azrin Adnan

    (Research Institute for Islamic Products and Civilization, Universiti Sultan Zainal Abidin, Gong Badak Campus, 21300, Kuala Terengganu, Terengganu, Malaysia,)

  • Zunaidah Sulong

    (Faculty of Economics, Accountancy and Management Sciences, Universiti Sultan Zainal Abidin, Gong Badak Campus, 21300, Kuala Terengganu, Terengganu, Malaysia.)

Abstract

The instability in the value of naira have made the Central Bank of Nigeria (CBN) a regular actor in the foreign exchange market (FEM) in its efforts to stabilize the value of Naira and counter the disorderly behavior of the market. This paper examines the effectiveness of the CBN's intervention operations in the FEM using annual secondary time series data of four variables. The variables are the exchange rate, money supply, net foreign asset (a proxy for intervention variable), and lending rate ranging from 1970 to 2013. The result from the Johansen Juselius cointegration test shows that the naira exchange rate, intervention variable and monetary aggregates are cointegrated. The result from the error correction model also indicates that the naira exchange rate will adjust and re-establish itself at the speed of 12% annually. Moreover, the result of the Granger causality test the CBN intervention is non-sterilized. Therefore, the CBN should provide an effective way through which its FEM intervention could be efficient and sterilized so as to ensure stability in the exchange rate and the price level.

Suggested Citation

  • Siba Dayyabu & Ahmad Azrin Adnan & Zunaidah Sulong, 2016. "Effectiveness of Foreign Exchange Market Intervention in Nigeria (1970-2013)," International Journal of Economics and Financial Issues, Econjournals, vol. 6(1), pages 279-287.
    • Handle: RePEc:eco:journ1:2016-01-36
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    References listed on IDEAS

    as
    1. Aliyu, Shehu Usman Rano, 2009. "Impact of Oil Price Shock and Exchange Rate Volatility on Economic Growth in Nigeria: An Empirical Investigation," MPRA Paper 16319, University Library of Munich, Germany, revised 10 Jun 2009.
    2. Ahmed, Habib, 2001. "Exchange Rate Stability: Theory and Policies from an Islamic Perspective (Research Paper)," Occasional Papers 53, The Islamic Research and Teaching Institute (IRTI).
    3. Adebiyi, Michael Adebayo, 2007. "An Evaluation of Foreign Exchange Intervention and Monetary Aggregates in Nigeria (1986- 2003)," MPRA Paper 3817, University Library of Munich, Germany.
    4. Aliyu, Shehu Usman Rano & Yakub, Ma'aji Umar & Sanni, Ganiyu Kayode & Duke, Omolara, 2009. "Exchange Rate Pass-through in Nigeria: Evidence from a Vector Error Correction Model," MPRA Paper 25053, University Library of Munich, Germany, revised 29 Mar 2010.
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    Cited by:

    1. Nyoni, Thabani, 2018. "Modeling and Forecasting Naira / USD Exchange Rate In Nigeria: a Box - Jenkins ARIMA approach," MPRA Paper 88622, University Library of Munich, Germany, revised 19 Aug 2018.

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    More about this item

    Keywords

    Foreign Exchange Market; Nigeria; Exchange Rate;
    All these keywords.

    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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