Asymmetric effects of financial dollarization on nominal exchange rate volatility in Nigeria

Elijah Udoh and Elias A. Udeaja

The Journal of Economic Asymmetries, 2019, vol. 19, issue C, -

Abstract: The paper investigates the relationship between financial dollarization and nominal exchange rate volatility in Nigeria. To achieve this objective, a Threshold Autoregressive Conditional Heteroscedasticity (TARCH) model using monthly data for the period December 2009 to September 2018. From the estimation results, it is evident that nominal exchange rate volatility in Nigeria is driven by the degree of financial dollarization, all things equal. It is also evidence from the study that exchange rate volatility exhibit high degree of persistence and ratchet effect. In other words, bad news of depreciation in the nominal exchange rate trigger foreign currency holding which further depreciates the domestic currency exchange rate more than the good news of appreciation lead to further appreciation of the nominal exchange rate of the domestic currency.

Keywords: Exchange rate volatility; Financial dollarization; Currency substitution; Threshold ARCH; Nigeria (search for similar items in EconPapers)
JEL-codes: C22 F31 F33 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:joecas:v:19:y:2019:i:c:7

DOI: 10.1016/j.jeca.2019.e00118

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