Published June 13, 2022 | Version v1
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MONETARY AND FISCAL POLICY INTERACTIONS AND EXCHANGE RATE MOVEMENTS IN NIGERIA

Authors/Creators

  • 1. Department of Economics, University of Uyo, P.M.B. 1017, Uyo, Akwa Ibom State, Nigeria
  • 2. Department of Statistics, Central Bank of Nigeria, Abuja, Nigeria

Description

Abstract: This paper aimed at examining the influence of monetary and fiscal policy on exchange rate movements in Nigeria. The study is conducted to cover the period 1985 to 2020 where adequate time series data were obtained from the Central Bank of Nigeria. The methodology of the research followed the ‘ordinary least squares’ (OLS), threshold regression, impulse response function, and the variance decomposition. At the individual policy level, the OLS result indicated that only broad money supply as a monetary policy variable exerted a positive and significant effect on exchange rate movements. At the fiscal realm, debt and expenditure exerted a positive and significant effect on exchange rate movement while revenue exerted a negative and significant effect. From the threshold regression, the optimal growth rate of money supply, debt, government expenditure, and government revenue that will not aggravate exchange rate depreciation are 6.44%, 7.46%, 6.76%, and 9.14% respectively. The impulse response function reflected that a one-standard deviation shock in both monetary policy and fiscal policy variables causes exchange rate to explode both in the short run and in the long run. The variance decomposition for the monetary policy variables indicate that exchange rate is strongly endogenous both in the short run and in the long run as it constitutes 88.53% of its forecasted error variance in the tenth period. For the fiscal policy variables, exchange rate is only strongly endogenous in the short run as it accounts for 100% of its forecasted error variance in the first period, but it declined rapidly to 59.01% in the long run; with government revenue becoming strongly exogenous in predicting exchange rate in the long run.  This calls for both monetary and fiscal policy measures to curb the rising depreciation of the naira.

Keywords: Depreciation, Floating Exchange Rate Policy, Macroeconomic Management, Pegging.

Title: MONETARY AND FISCAL POLICY INTERACTIONS AND EXCHANGE RATE MOVEMENTS IN NIGERIA

Author: Ubong Edem Effiong, Nnaemeka Peter Arinze, Joel Isaac Okon

International Journal of Novel Research in Marketing Management and Economics

ISSN 2394-7322

Vol. 9, Issue 2, May 2022 - August 2022

Page No: 42-64

Novelty Journals

Website: www.noveltyjournals.com

Published Date: 13-June-2022

DOI: https://doi.org/10.5281/zenodo.6638437

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Notes

International Journal of Novel Research in Marketing Management and Economics, ISSN 2394-7322, Novelty Journals, Website: www.noveltyjournals.com

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