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

Monday A. Adawo and Ekpeno Effiong

MPRA Paper from University Library of Munich, Germany

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.

Keywords: Exchange rate; Monetary fundamentals; Monetary exchange rate model; Cointegration; Nigeria (search for similar items in EconPapers)
JEL-codes: C22 C32 E4 F31 F41 (search for similar items in EconPapers)
Date: 2013-02-05
New Economics Papers: this item is included in nep-afr and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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