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Monetary exchange rate model as a long-run phenomenon: evidence from Nigeria

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  • Adawo, Monday A.
  • Effiong, Ekpeno L.

Abstract

How well does the monetary exchange rate model explain exchange rate behaviour in Nigeria? Using the Johansen -Juselius (1990) and Johansen (1991) cointegration technique, this paper examines the long-run validity of the monetary exchange rate model in Nigeria for the flexible exchange rate regime with quarterly data covering the period 1987 to 2008. We found a unique long-run relationship between the nominal exchange rate and the traditional monetary fundamentals (money supply, output and interest rate differentials). The estimated cointegrating coefficients are theoretically consistent with the monetary model and statistically significant exception of the output differential. In particular, this evidence supports strongly the validity of the monetary exchange rate model for Nigeria and also its relevance to modelling the naira-US dollar exchange rate movement.

Suggested Citation

  • Adawo, Monday A. & Effiong, Ekpeno L., 2013. "Monetary exchange rate model as a long-run phenomenon: evidence from Nigeria," MPRA Paper 46407, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:46407
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    References listed on IDEAS

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    Cited by:

    1. Ekpeno L. Effiong, 2014. "Exchange Rate Dynamics and Monetary Fundamentals: A Cointegrated SVAR Approach for Nigeria," Global Business Review, International Management Institute, vol. 15(2), pages 205-221, June.
    2. Evans, Olaniyi, 2013. "The Monetary Model of Exchange Rate in Nigeria: an Autoregressive Distributed Lag (ARDL) Approach," MPRA Paper 52457, University Library of Munich, Germany.

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    More about this item

    Keywords

    Exchange rate; Monetary fundamentals; Monetary exchange rate model; Cointegration; Nigeria;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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