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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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    File URL: https://mpra.ub.uni-muenchen.de/3817/1/MPRA_paper_3817.pdf
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    References listed on IDEAS

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    1. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
    2. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 39(3), pages 106-135.
    3. M. Hashem Pesaran & Ron P. Smith, 1998. "Structural Analysis of Cointegrating VARs," Journal of Economic Surveys, Wiley Blackwell, vol. 12(5), pages 471-505, December.
    4. Simatele, Munacinga C H, 2004. "Financial sector reforms and monetary policy reforms in Zambia," MPRA Paper 21575, University Library of Munich, Germany.
    5. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-1580, November.
    6. Kearney, Colm & MacDonald, Ronald, 1986. "Intervention and sterilisation under floating exchange rates: The UK 1973-1983," European Economic Review, Elsevier, vol. 30(2), pages 345-364, April.
    Full references (including those not matched with items 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.

    More about this item

    Keywords

    Nigeria; Foreign Exchange Intervention; Co-integration and Auto-regressive Distributed Lag;

    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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