Adebiyi, Michael Adebayo (2007): An Evaluation of Foreign Exchange Intervention and Monetary Aggregates in Nigeria (1986- 2003).
Download (285kB) | Preview
The paper investigates the impact of foreign exchange intervention in the Nigerian foreign exchange market using an Autoregressive Distributed Lag (ARDL) modeling approach. Quarterly time series data spanning 1986:1 to 2003:4 are used and a number of statistical tools are employed to verify this hypothesis. The study examines stochastic characteristics of each time series by testing their stationarity using Phillip Perron (PP) test. This is followed by performing cointegration test using Johansen technique. The existence of co-integration motivates us to estimate the error correction model for broad money, M2. The overall finding from all the techniques employed is that foreign exchange intervention in Nigeria is sterilized because the cumulative aid, which constitute part of foreign exchange inflows, and net foreign assets variables, which are proxies for intervention, are not significant. Thus, paper concludes by recommending, among others, that the use of stock of external reserves to support the exchange rate through increased funding of the foreign exchange market should be encouraged.
|Item Type:||MPRA Paper|
|Institution:||University of Lagos, Nigeria, Department of Economics|
|Original Title:||An Evaluation of Foreign Exchange Intervention and Monetary Aggregates in Nigeria (1986- 2003)|
|Keywords:||Nigeria; Foreign Exchange Intervention; Co-integration and Auto-regressive Distributed Lag|
|Subjects:||E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy
E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit
|Depositing User:||Michael Adebayo Adebiyi|
|Date Deposited:||15. Jul 2007|
|Last Modified:||11. Feb 2013 17:49|
Baillie, R. and O. F. Humpage (1994). Post-louvre intervention: Did central banks stabilize the dollar? Federal Reserve Bank Of Cleveland Working Paper Banerjee, Anindya, Juan J. Dolado, John W. Galbraith and David F. Hendry (1993). Co- integration, Error Correction, and the Econometric Analysis of Non-stationary Data. Oxford, Oxford University Press. Bonser-Neal, C. and G. Tanner (1996). Central bank intervention and the volatility of exchange rates: Evidence from the options market. Journal Of International Money And Finance 15. Danker, D., R. A. Haas, D. W. Henderson, S. Symanski, and R. W. Tryon (1996). Small empirical models of exchange market intervention: Applications to Germany, Japan, and Canada. Journal of Policy Modeling 9. Dominguez, K. (1998). Central bank intervention and exchange rate volatility. Journal Of International Money and Finance 18. Dominguez, K. and J. A. Frankel (1993). Does foreign exchange intervention matter? the portfolio effect. American Economic Review 83 (5). Dominguez, K. (1990). Market responses to coordinated central bank intervention. Carnegie Rochester Conference Series On Public Policy 32. Emenuga, C. (1998). The Outcome of Financial Sector Reforms in West African. International Development Centre: Science for Humanity, Canada. Chapter 14. Emenuga, C. (1996). Distortions in the Nigerian Financial Markets.” In A. Ekpo (ed.), Fiscal and Monetary Policies During Structural Adjustment in Nigeria, Proceedings of Senior Policy Seminar, held at the Central Bank of Nigeria, Lagos, March 6–7. Enders, W. (1995). Applied Econometric Time Series, New York, John Wiley. Engle, C. M. and J. A. Frankel (1984). Do asset demand functions optimize over the mean and variance of the real returns? A six-currency test. Journal Of International Economics 17. Engle, C. M. and A. P. Rodriguez (1989). Tests of international CAPM with time varying covarinaces. Journal Of Applied Econometrics 4. Engle, R.F. and Granger, C.W. J. (1987). Co-integration and Error Correction: Representation, Estimation and Testing. Econometrica, 55: 251-76. Frankel, J. A. (1992). In search of the exchange rate premium: A six-currency test assuming mean-variance optimization. Journal of International Money and Finance 1. Gosh, A. (1992). Is it signaling? Exchange intervention and the Dollar Deutsche-mark rate. Journal Of International Economics 32. Johansen, Soren (1991). "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models." Econometrica 59(6): 1551-1580. Johansen, Soren and Katarina Juselius (1990). "Maximum Likelihood Estimation and Inference on Cointegration- with Applications to the Demand for Money." Oxford Bulletin of Economics and Statistics 52(2): 169-210. Judge, George G., et al. (1985). The Theory and Practice of Econometrics. New York: John Wiley, 2nd ed. Humpage, O. (1989). On the effectiveness of exchange market intervention. Federal Reserve Bank Of Cleveland. Kaminsky, G. and K. Lewis (1996). Does foreign exchange intervention signal future monetary policy? Journal Of Monetary Economics 37. Kearney, C. and R. Macdonald (1985). Intervention and sterilization under floating exchange rates: The UK 1973-1983. European Economic Review 30. Lewis, K. (1988a). Inflation, risk and asset market disturbances: The mean -variance model revisited. Journal International Money and Finance 7. Lewis, K. (1988b). Testing the portfolio balance model: A multi-lateral approach. Journal International Economic 24. Mussa (1981). The Role of Official Intervention. New York: Group Of Thirty. Obadan, M.I. (2002). Towards Exchange Rate Stability in Nigeria. A paper presented at The Year 2002 One-Day Seminar of the Nigerian Economic Society (NES) at the Federal Palace Hotel, Lagos. Ojo, M.O. (2001). Principles and Practice of Monetary Management in Nigeria. Central Bank of Nigeria, Nigeria. Chapters 11 and 12. Osterwald-Lenum, M., (1992), “A Note with Quantiles of the Asymptotic Distribution of the Maximum Likelihood Cointegration Rank Test Statistics,” Oxford Bulletin of Economics and Statistics, 54, pp.461-472. Oyejide, T,A, and O. Ogun (1995). Structural Adjustment and Exchange Rate Policy. In: Macroeconomic policy Issued in an Open Developing Economy: A Case of Nigeria. Editted by Akin Iwayemi. Part IV, Chapter 15 Laurenceson, James and Joseph C.H. Chai (2003). Financial Reform and Economic Development in China. Cheltenham, UK, Edward Elgar. Pesaran, M. Hasem and Bahram Pesaran (1997). Working with Microfit 4.0: Interactive Econometric Analysis. Oxford, Oxford University Press. Pesaran, M. Hasem and Ron P. Smith (1998). "Structural Analysis of Cointegrating VARs." Journal of Economic Survey 12(5): 471-505. Pesaran, M. Hasem and Yongcheol Shin (1999). "An Autoregressive Distributed Lag Modellin Approach to Cointegration Analysis". In S. Strom, A. Hollly and P. Diamond (Eds.), Econometrics and Economic Theory in the 20th Century: The Ranger Frisch Centennial Symposium. Cambridge, Cambridge University Press. Available at: www.econ.cam.ac.uk/faculty/pesaran/ADL.pdf. Pesaran, M. Hasem, Yongcheol Shin and Richard J. Smith (2001). "Bounds Testing Approaches to the Analysis of Level Relationships." Journal of Applied Econometrics 16(3): 289-326. Phillip, P.C.B. and Parron, P. (1988). Testing for a Unit Root in Time Series Regression. Biometrika, 75: 335-436. Rogoff, K. (1984). The effects of sterilized intervention: An analysis of weekly data. Journal Of Monetary Economics 14. Sarno, L. and M. P. Taylor (2001). Official intervention in the foreign exchange market: Is it effective, and if so, how does it work? Journal Of Economic Literature 39. Simatele, M. C. H. (2003). Financial Sector Reforms And Monetary Policy In Zambia. PhD Dissertation, Economic Studies, Department Of Economics School of Economics and Commercial Law, Göteborg University Sobodu, O.O. and P.O. Akiode (1994). Bank Performance, Supervision and Privatization in Nigeria: Analyzing the transition to a Deregulation Economy. Final Report Submitted to the African Economic Research Consortium (AERC), Dec. 1994. Tucker, J.A. (2004). The stability of Money Demand in the West African Monetary Zone: Implications for the Conduct of Single Monetary Policy. Journal of Monetary and economic Integration, West African Monetary Institute Vol. 3 (1): 21-59) Von Hagen, J. (1989). Monetary targeting with exchange rate constraints: The bundesbank in the 1980s. Federal Reserve Bank Of St. Louis.