IDEAS home Printed from https://ideas.repec.org/a/zbw/espost/215419.html
   My bibliography  Save this article

Effect of Exchange Rate Shock on Key Sectors of the Nigerian Economy

Author

Listed:
  • Iwegbu, Onyebuchi
  • Nwaogwugwu, Isaac Chiawolam

Abstract

This study conducts a comparative analysis of the effect of exchange rate shock on the industrial and agricultural sector in the regulated regime and the guided deregulated regime in Nigeria. The study employs a Structural Vector Autoregression (SVAR) to estimate the shock with the aid of SVAR Forecast Error Decomposition (FEVDs) and the Structural Impulse-Response Function. Preliminary tests reveal that the variables employed were integrated at varying order of level and first difference and further test revealed a bound long run co-integration on the models specified. From the study, it was discovered that in the regulated regime, agricultural output and industrial sector output fairly did not respond to exchange rate shocks both in the short run and in the long run. However, in the guided deregulated regime, exchange rate shock in the long run negatively affects the industrial sector more than the agricultural sector. Another conclusion drawn from the study is that most of the shocks in the agricultural and industrial sector are primarily caused by exchange rate shocks. The policy implication therefore is that any shock in a deregulated exchange rate system greatly affects the industrial sector than the agricultural sector in the long run. Further policy implication from the study is that agricultural and industrial sector shocks are basically caused by exchange rate shocks in a deregulated regime than a regulated regime as monetary policy is the main thrust of shocks in both sectors in the regulated regime.

Suggested Citation

  • Iwegbu, Onyebuchi & Nwaogwugwu, Isaac Chiawolam, 2019. "Effect of Exchange Rate Shock on Key Sectors of the Nigerian Economy," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, pages 507-533.
  • Handle: RePEc:zbw:espost:215419
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/215419/1/IWEGBU%20Onyebuchi%20Published-EFFECT%20OF%20EXCHANGE%20RATE%20SHOCK%20ON%20KEY%20SECTORS%20OF%20THE%20NIGERIAN%20ECONOMY.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Jacques Mazier & Nabil Aflouk & Myoung Keun On, 2016. "Impact of monetary regime and exchange rates on ASEAN economic integration," Post-Print hal-01367908, HAL.
    2. Reinhart, Carmen, 2002. "A Modern History of Exchange Rate Arrangements: The Country Histories, 1946-2001," MPRA Paper 13191, University Library of Munich, Germany.
    3. Charles van Marrewijk, 2005. "Basic Exchange Rate Theories," Tinbergen Institute Discussion Papers 05-024/2, Tinbergen Institute.
    4. Carmen M. Reinhart & Kenneth S. Rogoff, 2004. "The Modern History of Exchange Rate Arrangements: A Reinterpretation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(1), pages 1-48.
    5. Ferdinand Owoundi, 2016. "Do exchange rate misalignments really affect economic growth? The case of Sub-Saharan African countries," International Economics, CEPII research center, issue 145, pages 92-110.
    6. Abdul Rashid & Fazal Husain, 2013. "Capital Inflows, Inflation, and the Exchange Rate Volatility- An Investigation for Linear and Nonlinear Causal Linkages," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 52(3), pages 183-206.
    7. Kenza Benhima, 2012. "Exchange Rate Volatility and Productivity Growth: The Role of Liability Dollarization," Open Economies Review, Springer, vol. 23(3), pages 501-529, July.
    8. 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.
    9. Cooley, Thomas F. & Leroy, Stephen F., 1985. "Atheoretical macroeconometrics: A critique," Journal of Monetary Economics, Elsevier, vol. 16(3), pages 283-308, November.
    10. Roberto Perotti, 2005. "Estimating the effects of fiscal policy in OECD countries," Proceedings, Federal Reserve Bank of San Francisco.
    11. Bernanke, Ben S., 1986. "Alternative explanations of the money-income correlation," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 25(1), pages 49-99, January.
    12. Glauco De Vita & Khine Sandar Kyaw, 2011. "Does the Choice of Exchange Rate Regime Affect the Economic Growth of Developing Countries?," Journal of Developing Areas, Tennessee State University, College of Business, vol. 45(1), pages 135-153, July-Dece.
    13. Marius Cristea & Stefana A. D. Varvari & József Benedek, 2012. "Pros and cons of foreign direct investments on local economy," Eszak-magyarorszagi Strategiai Fuzetek, Faculty of Economics, University of Miskolc, vol. 9(2), pages 20-34.
    14. François Lescaroux & Valérie Mignon, 2008. "On the Influence of Oil Prices on Economic Activity and Other Macroeconomic and Financial Variables," Working Papers 2008-05, CEPII research center.
    15. Margarita Kalamova & Nick Johnstone, 2012. "Environmental Policy Stringency and Foreign Direct Investment," Chapters, in: Frank Wijen & Kees Zoeteman & Jan Pieters & Paul van Seters (ed.), A Handbook of Globalisation and Environmental Policy, Second Edition, chapter 2, Edward Elgar Publishing.
    16. Olivier Blanchard & Roberto Perotti, 2002. "An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(4), pages 1329-1368.
    17. Andrew Ojede, 2015. "Exchange Rate Shocks and U.S. Services and Agricultural Exports: Which Export Sector is More Affected?," The International Trade Journal, Taylor & Francis Journals, vol. 29(3), pages 228-250, August.
    18. repec:bla:opecrv:v:32:y:2008:i:4:p:343-380 is not listed on IDEAS
    19. Sunday Ojo Akinmulegun, 2012. "Foreign Direct Investment (FDI) and standard of living in Nigeria," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 2(3), pages 1-11.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Mahmood, Haider & Alkhateeb, Tarek Tawfik Yousef & Ahmed, Nawaz, 2017. "Impact of devaluation on Saudi oil exports: The J-Curve analysis," MPRA Paper 109454, University Library of Munich, Germany.
    2. Jerome Creel & Paola Monperrus-Veroni & Francesco Saraceno, 2005. "Discretionary Policy Interactions and the Fiscal Theory of the Price Level: A SVAR Analysis on French Data," Documents de Travail de l'OFCE 2005-12, Observatoire Francais des Conjonctures Economiques (OFCE).
    3. Ferrara, Laurent & Metelli, Luca & Natoli, Filippo & Siena, Daniele, 2021. "Questioning the puzzle: Fiscal policy, real exchange rate and inflation," Journal of International Economics, Elsevier, vol. 133(C).
    4. Ramey, V.A., 2016. "Macroeconomic Shocks and Their Propagation," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 71-162, Elsevier.
    5. Biswajit Mohanty & N.R. Bhanumurthy, 2014. "Exchange Rate Regimes and Inflation: Evidence from India," International Economic Journal, Taylor & Francis Journals, vol. 28(2), pages 311-332, June.
    6. Rahaman, Ataur & Leon-Gonzalez, Roberto, 2021. "The effects of fiscal policy shocks in Bangladesh: An agnostic identification procedure," Economic Analysis and Policy, Elsevier, vol. 71(C), pages 626-644.
    7. Andrew Ojede, 2015. "Exchange Rate Shocks and U.S. Services and Agricultural Exports: Which Export Sector is More Affected?," The International Trade Journal, Taylor & Francis Journals, vol. 29(3), pages 228-250, August.
    8. Alkhateeb, Tarek Tawfik Yousef & Alkahtani, Nasser Saad & Mahmood, Haider, 2017. "Assessing the Role of Foreign Labour on Saudi Labour Unemployment in Saudi Arabia," MPRA Paper 109449, University Library of Munich, Germany.
    9. Zarei, Samira, 2019. "How do Real Exchange Rate Movements Affect the Economic Growth in Iran?," MPRA Paper 99102, University Library of Munich, Germany.
    10. Kim, Soyoung, 2015. "Country characteristics and the effects of government consumption shocks on the current account and real exchange rate," Journal of International Economics, Elsevier, vol. 97(2), pages 436-447.
    11. Mahmood, Haider, 2018. "An Investigation of Macroeconomic Determinants of FDI Inflows in Bangladesh," MPRA Paper 109448, University Library of Munich, Germany.
    12. Gossé, Jean-Baptiste & Guillaumin, Cyriac, 2013. "L’apport de la représentation VAR de Christopher A. Sims à la science économique," L'Actualité Economique, Société Canadienne de Science Economique, vol. 89(4), pages 309-319, Décembre.
    13. K. Peren Arin & Peter H. Helles & Murat Koyuncu & Otto F. M. Reich, 2016. "Should We Care About The Composition Of Tax-Based Stimulus Packages?," Contemporary Economic Policy, Western Economic Association International, vol. 34(3), pages 430-445, July.
    14. Cruz-Rodríguez, Alexis, 2022. "Exchange arrangements and economic growth. What relationship is there?," MPRA Paper 113897, University Library of Munich, Germany.
    15. Beetsma, Roel & Furtuna, Oana & Giuliodori, Massimo & Mumtaz, Haroon, 2021. "Revenue- versus spending-based fiscal consolidation announcements: Multipliers and follow-up," Journal of International Economics, Elsevier, vol. 131(C).
    16. Alkhateeb, Tarek Tawfik Yousef & Mahmood, Haider & Sultan, Zafar Ahmad & Ahmad, Nawaz, 2017. "Trade Openness and Employment Nexus in Saudi Arabia," MPRA Paper 109451, University Library of Munich, Germany.
    17. repec:hal:spmain:info:hdl:2441/1423 is not listed on IDEAS
    18. repec:spo:wpmain:info:hdl:2441/1423 is not listed on IDEAS
    19. Gabriel Pino & Dilara Tas & Subhash C. Sharma, 2016. "An investigation of the effects of exchange rate volatility on exports in East Asia," Applied Economics, Taylor & Francis Journals, vol. 48(26), pages 2397-2411, June.
    20. Ricci-Risquete, Alejandro & Ramajo, Julián, 2015. "The effects of fiscal policy on the Spanish economy: Keynesian or non-Keynesian behavior?," Journal of Policy Modeling, Elsevier, vol. 37(6), pages 1019-1048.
    21. Mahmood, Haider, 2016. "Testing Fiscal Sustainability under the Inter-Temporal Budget Constraint in Saudi Arabia," MPRA Paper 109458, University Library of Munich, Germany.
    22. Laurent Ferrara & Luca Metelli & Filippo Natoli & Daniele Siena, 2020. "Questioning the puzzle: Fiscal policy, exchange rate and inflation," Working papers 752, Banque de France.

    More about this item

    Keywords

    Exchange Rate Shock; Industrial Sector; Agricultural Sector; Structural Vector Autoregression (SVAR);
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:espost:215419. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: https://edirc.repec.org/data/zbwkide.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.