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Asymmetric effects of financial dollarization on nominal exchange rate volatility in Nigeria

Author

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  • Udoh, Elijah A.P.
  • Udeaja, Elias A.

Abstract

The paper investigates the relationship between financial dollarization and nominal exchange rate volatility in Nigeria. To achieve this objective, a Threshold Autoregressive Conditional Heteroscedasticity (TARCH) model using monthly data for the period December 2009 to September 2018. From the estimation results, it is evident that nominal exchange rate volatility in Nigeria is driven by the degree of financial dollarization, all things equal. It is also evidence from the study that exchange rate volatility exhibit high degree of persistence and ratchet effect. In other words, bad news of depreciation in the nominal exchange rate trigger foreign currency holding which further depreciates the domestic currency exchange rate more than the good news of appreciation lead to further appreciation of the nominal exchange rate of the domestic currency.

Suggested Citation

  • Udoh, Elijah A.P. & Udeaja, Elias A., 2019. "Asymmetric effects of financial dollarization on nominal exchange rate volatility in Nigeria," The Journal of Economic Asymmetries, Elsevier, vol. 19(C), pages 1-1.
    • Handle: RePEc:eee:joecas:v:19:y:2019:i:c:7
    DOI: 10.1016/j.jeca.2019.e00118
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    File URL: http://www.sciencedirect.com/science/article/pii/S1703494918301154
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    Cited by:

    1. Mesagan, Ekundayo Peter & Alimi, Olorunfemi Yasiru & Vo, Xuan Vinh, 2022. "The asymmetric effects of exchange rate on trade balance and output growth," The Journal of Economic Asymmetries, Elsevier, vol. 26(C).

    More about this item

    Keywords

    Exchange rate volatility; Financial dollarization; Currency substitution; Threshold ARCH; Nigeria;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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