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Investigating the Relationship between Currency Substitution, Exchange Rate and Inflation in Nigeria: An Autoregressive Distributed Lag (ARDL) Approach

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  • Adeniji, Sesan

Abstract

Currency substitution is a widely spread phenomenon in developing countries with high level vagueness of its concept and causes. Therefore, this paper goes all out to examine the relationship that exists between currency substitution and some macroeconomic variables such as exchange rate, inflation and interest rate in Nigeria using Autoregressive Distributed Lag (ARDL) techniques over a period of 1970 – 2012. The result of the bound test procedure and other tools employed confirm that there is a stable and long-run relationship between currency substitution and the macroeconomic variables under consideration. The CUSUM and CUSUMSQ when also incorporated support these findings for the period. It is therefore suggest that effective and efficient policy control measure should be develop and implement to normalize exchange rate, inflation and interest rate.

Suggested Citation

  • Adeniji, Sesan, 2013. "Investigating the Relationship between Currency Substitution, Exchange Rate and Inflation in Nigeria: An Autoregressive Distributed Lag (ARDL) Approach," MPRA Paper 52551, University Library of Munich, Germany, revised 28 Dec 2013.
    • Handle: RePEc:pra:mprapa:52551
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    References listed on IDEAS

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    Cited by:

    1. Murat Eren & Selim Basar & Bengu Tosun, 2022. "Dollarization and Risk Premium in a Risky Country: An Investigation on Turkiye," Istanbul Journal of Economics-Istanbul Iktisat Dergisi, Istanbul University, Faculty of Economics, vol. 72(72-2), pages 625-651, December.
    2. Angela Ifeanyi Ujunwa & Augustine Ujunwa & Emmanuel Onah & Nnenna Georgina Nwonye & Onyedikachi David Chukwunwike, 2021. "Extending the determinants of currency substitution in Nigeria: Any role for financial innovation?," South African Journal of Economics, Economic Society of South Africa, vol. 89(4), pages 590-607, December.

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    More about this item

    Keywords

    Currency Substitution; Exchange Rate; Inflation; ARDL; CUSUM and CUMSUMQ.;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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