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Determinants of Exchange Rate Volatility: New Estimates from Nigeria

Author

Listed:
  • Adamu Hassan
  • Mika’ilu Abubakar
  • Yusuf Umar Dantama

Abstract

This study investigates the sources of exchange rate volatility in Nigeria from 1989Q1 to 2015Q4. The volatility of exchange rate was obtained through the use of Autoregressive Conditional Heteroscadasticity (ARCH) model. The study further employed Autoregressive Distributed Lag (ARDL) model and Granger Causality test to estimate the relationship between exchange rate volatility and its determinants in Nigeria. The findings revealed that net foreign asset and interest rate have positive and statistically significant impact on exchange rate volatility while fiscal balance, economic openness and oil price have positive and statistically insignificant impact on exchange rate volatility. Furthermore, nominal gross domestic product has negative and statistically insignificant impact on exchange rate volatility. Result of Granger Causality test reveals that there is bidirectional causality running from both fiscal balance and exchange rate volatility whereas unidirectional causality runs from economic openness and oil price to exchange rate volatility. There is however, no evidence of causality between net foreign asset, nominal gross domestic product and interest rate on one hand and exchange rate volatility. Consistent with the findings, the study recommends that government should increase the holding of foreign asset in order to ensure surplus or balance in the current account and there is need for the Central Bank of Nigeria to ensure a stable interest rate in the economy with a view to realize stable exchange rate.

Suggested Citation

  • Adamu Hassan & Mika’ilu Abubakar & Yusuf Umar Dantama, 2017. "Determinants of Exchange Rate Volatility: New Estimates from Nigeria," Eastern Journal of Economics and Finance, Online Science Publishing, vol. 3(1), pages 1-12.
    • Handle: RePEc:onl:ejoeaf:v:3:y:2017:i:1:p:1-12:id:437
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    Citations

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    Cited by:

    1. Yuorkuu, Chrysantus A. & Forson, Priscilla, 2024. "Effect of Exchange Rate Volatility and its Transmission Pathways on Economic Growth in Post Exchange Rate Liberalization Ghana," African Journal of Economic Review, African Journal of Economic Review, vol. 12(1), March.
    2. Taofeek Olusola Ayinde & Abiodun S. Bankole, 2021. "Fiscal dominance and exchange rate stability in Nigeria," Future Business Journal, Springer, vol. 7(1), pages 1-15, December.
    3. SOLOMON PRINCE Nathaniel, 2020. "Does Exchange Rate Have Asymmetric Impact On Trade Balance? Fresh Insights From Combined Cointegration," Studies in Business and Economics, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 15(1), pages 259-269, April.
    4. Ekundayo Peter Mesagan & Kolawole Kushimo & Dominic Ikoh Umar, 2021. "Do fluctuations in exchange rate hinder non-oil export? An analysis of agriculture and manufacturing in Nigeria," SN Business & Economics, Springer, vol. 1(11), pages 1-23, November.
    5. Hussaini Umaru & Aguda Niyi A. & Nordiana Osagie Davies, 2018. "The Effects of Exchange Rate Volatility on Economic Growth of West African English-Speaking Countries," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 8(4), pages 131-143, October.
    6. Auyo Musa, Abdulhamid & Rafindadi Sanusi, Aliyu, 2021. "Relationship Between Interest Rate And Exchange Rate In Nigeria: Does The Banking Sector Debt Level Matter?," Ilorin Journal of Economic Policy, Department of Economics, University of Ilorin, vol. 8(2), pages 89-103, June.
    7. Woo, Chiew Eng & Kun, Sek Siok, 2019. "Examining Asymmetric Oil Price Exposure to Assets Return in Malaysia: A Nonlinear ARDL Approach," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 53(3), pages 23-41.

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