Econometric Analysis of Determinants of Real Effective Exchange Rate in Nigeria (1960-2015)

This study investigates the determinants of real effective exchange rate in Nigeria for the period between 1960 and 2015 using the vector error correction mechanism to separate long run from the short run fundamentals. The findings from the regression estimates revealed that; terms of trade, opennes...

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Main Author: Ibrahim Waheed
Format: Article
Language:English
Published: Oeconomica Timisiensis Foundation 2016-06-01
Series:Timisoara Journal of Economics and Business
Subjects:
SAP
O30
F32
Online Access:http://www.degruyter.com/view/j/tjeb.2016.9.issue-1/tjeb-2016-0005/tjeb-2016-0005.xml?format=INT
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spelling doaj-16a5dcf3cc714997a28e55c5f93546172020-11-24T23:42:17ZengOeconomica Timisiensis FoundationTimisoara Journal of Economics and Business2286-09912016-06-0191628010.1515/tjeb-2016-0005tjeb-2016-0005Econometric Analysis of Determinants of Real Effective Exchange Rate in Nigeria (1960-2015)Ibrahim Waheed0 PhD, Department of economics, Al-Hikmah University, Ilorin, NigeriaThis study investigates the determinants of real effective exchange rate in Nigeria for the period between 1960 and 2015 using the vector error correction mechanism to separate long run from the short run fundamentals. The findings from the regression estimates revealed that; terms of trade, openness of the economy, net capital inflow and total government expenditure were the major long run determinants of real effective exchange rate in the country while variables such as; broad money supply (M2), nominal effective exchange rate, structural adjustment program dummy, June 12 crisis and change to civil rule dummies were revealed as the major short run determinants of exchange rate in Nigeria between 1960 and 2015. The study concludes by recommending that since the major variable of terms of trade (crude oil price) is out of the government control, the effect of shocks due to the fluctuations of crude oil price can be minimized by shifting the economy from a mono-product nation and diversify the economy to increase productive capacity. Also, the change to civil rule dummy used in the study revealed that the system has not been friendly with the country’s real effective exchange rate, thus needing to review the system and bringing out all negative activities there in to ensure Nigeria’s currency appreciation. Guided openness is also suggested to avert the danger that unguided trade liberalization may bring into the country.http://www.degruyter.com/view/j/tjeb.2016.9.issue-1/tjeb-2016-0005/tjeb-2016-0005.xml?format=INTExchange rateTerms of tradeOpennessCivil ruleSAPGovernment expenditureO30F32
collection DOAJ
language English
format Article
sources DOAJ
author Ibrahim Waheed
spellingShingle Ibrahim Waheed
Econometric Analysis of Determinants of Real Effective Exchange Rate in Nigeria (1960-2015)
Timisoara Journal of Economics and Business
Exchange rate
Terms of trade
Openness
Civil rule
SAP
Government expenditure
O30
F32
author_facet Ibrahim Waheed
author_sort Ibrahim Waheed
title Econometric Analysis of Determinants of Real Effective Exchange Rate in Nigeria (1960-2015)
title_short Econometric Analysis of Determinants of Real Effective Exchange Rate in Nigeria (1960-2015)
title_full Econometric Analysis of Determinants of Real Effective Exchange Rate in Nigeria (1960-2015)
title_fullStr Econometric Analysis of Determinants of Real Effective Exchange Rate in Nigeria (1960-2015)
title_full_unstemmed Econometric Analysis of Determinants of Real Effective Exchange Rate in Nigeria (1960-2015)
title_sort econometric analysis of determinants of real effective exchange rate in nigeria (1960-2015)
publisher Oeconomica Timisiensis Foundation
series Timisoara Journal of Economics and Business
issn 2286-0991
publishDate 2016-06-01
description This study investigates the determinants of real effective exchange rate in Nigeria for the period between 1960 and 2015 using the vector error correction mechanism to separate long run from the short run fundamentals. The findings from the regression estimates revealed that; terms of trade, openness of the economy, net capital inflow and total government expenditure were the major long run determinants of real effective exchange rate in the country while variables such as; broad money supply (M2), nominal effective exchange rate, structural adjustment program dummy, June 12 crisis and change to civil rule dummies were revealed as the major short run determinants of exchange rate in Nigeria between 1960 and 2015. The study concludes by recommending that since the major variable of terms of trade (crude oil price) is out of the government control, the effect of shocks due to the fluctuations of crude oil price can be minimized by shifting the economy from a mono-product nation and diversify the economy to increase productive capacity. Also, the change to civil rule dummy used in the study revealed that the system has not been friendly with the country’s real effective exchange rate, thus needing to review the system and bringing out all negative activities there in to ensure Nigeria’s currency appreciation. Guided openness is also suggested to avert the danger that unguided trade liberalization may bring into the country.
topic Exchange rate
Terms of trade
Openness
Civil rule
SAP
Government expenditure
O30
F32
url http://www.degruyter.com/view/j/tjeb.2016.9.issue-1/tjeb-2016-0005/tjeb-2016-0005.xml?format=INT
work_keys_str_mv AT ibrahimwaheed econometricanalysisofdeterminantsofrealeffectiveexchangerateinnigeria19602015
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