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Impact of International Liquidity on Foreign Exchange Rate in Nigeria: A Comparative Crosscheck

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  • Abdurrauf Babalola

Abstract

This paper investigated the impact of international liquidity on exchange rates in Nigeria. Monthly data was sourced from the CBN statistical bulletin of 2017 series from 1981M1 to 2017M12. Exchange rate was made the regressand and then international liquidity, price level, export and import, the explanatory variables. ARDL and ECM were employed to analyse our data. Findings showed that, in both the short and long run, international reserves and export revealed a positive impact on exchange rate, while price level as well as import revealed a negative impact. However, only price level was not significant. Furthermore, the scaled result indicated that export has the most comparative impact on exchange rate. This was followed by import and then international reserves. The study suggests that, international reserves has a major impact and use of stabilizing the exchange rate and so there is need for the reserves to be either maintained or improved if the economy wants to maintain a managed floating exchange rate system. The government could reduce inflation rate in other to improve exchange rate and then increase export. Import substitute goods could be environmentally improved to reduce the quest for imported goods.

Suggested Citation

  • Abdurrauf Babalola, 2019. "Impact of International Liquidity on Foreign Exchange Rate in Nigeria: A Comparative Crosscheck," Academic Journal of Economic Studies, Faculty of Finance, Banking and Accountancy Bucharest,"Dimitrie Cantemir" Christian University Bucharest, vol. 5(3), pages 105-111, September.
    • Handle: RePEc:khe:scajes:v:5:y:2019:i:3:p:105-111
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    References listed on IDEAS

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    1. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501.
    2. Ebere Ume Kalu & Ogochukwu E Ugwu & Victor Chijioke Ndubuaku & Ozioma Patricia Ifeanyi, 2019. "Exchange Rate and Foreign Reserves Interface: Empirical Evidence from Nigeria," The Economics and Finance Letters, Conscientia Beam, vol. 6(1), pages 1-8.
    3. Ebere Ume Kalu & Ogochukwu E. Ugwu & Victor Chijioke Ndubuaku & Ozioma Patricia Ifeanyi, 2019. "Exchange Rate and Foreign Reserves Interface: Empirical Evidence from Nigeria," The Economics and Finance Letters, Conscientia Beam, vol. 6(1), pages 1-8.
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    More about this item

    Keywords

    International reserves; external reserves; exchange rate; export and import;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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