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An Evaluation of Foreign Exchange Intervention and Monetary Aggregates in Nigeria (1986- 2003)

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  • Adebiyi, Michael Adebayo

Abstract

The paper investigates the impact of foreign exchange intervention in the Nigerian foreign exchange market using an Autoregressive Distributed Lag (ARDL) modeling approach. Quarterly time series data spanning 1986:1 to 2003:4 are used and a number of statistical tools are employed to verify this hypothesis. The study examines stochastic characteristics of each time series by testing their stationarity using Phillip Perron (PP) test. This is followed by performing cointegration test using Johansen technique. The existence of co-integration motivates us to estimate the error correction model for broad money, M2. The overall finding from all the techniques employed is that foreign exchange intervention in Nigeria is sterilized because the cumulative aid, which constitute part of foreign exchange inflows, and net foreign assets variables, which are proxies for intervention, are not significant. Thus, paper concludes by recommending, among others, that the use of stock of external reserves to support the exchange rate through increased funding of the foreign exchange market should be encouraged.

Suggested Citation

  • 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.
    • Handle: RePEc:pra:mprapa:3817
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    References listed on IDEAS

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    Cited by:

    1. Ledenyov, Dimitri O. & Ledenyov, Viktor O., 2015. "Wave function method to forecast foreign currencies exchange rates at ultra high frequency electronic trading in foreign currencies exchange markets," MPRA Paper 67470, University Library of Munich, Germany.
    2. 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.

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    More about this item

    Keywords

    Nigeria; Foreign Exchange Intervention; Co-integration and Auto-regressive Distributed Lag;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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