An Evaluation of Price Based Determinants of Nigeria’s Real Exchange Rate
31 Pages Posted: 12 Apr 2011 Last revised: 14 Apr 2011
Date Written: March 15, 2011
Abstract
By using monthly data for the 2002-2010 period, we construct two novel indices for the real Naira exchange rate. We estimate determinants of both exchange rates by using a VEC model approach. Our estimations suggest that like most commodity exporting economies, to a great extent world oil prices, level of local currency in circulation and the level of foreign reserves held by the Central Bank can be used as good predictors of the long run equilibrium real exchange rate for Nigeria. We show that increases in the world price of oil have an appreciating effect while increases in the level of currency in circulation and in the reserves are associated with a depreciation of the Naira.
Keywords: Exchange Rate Equilibrium, Nigeria, VEC estimation
JEL Classification: F31, F41
Suggested Citation: Suggested Citation