Fiscal dominance and exchange rate stability in Nigeria

Taofeek Ayinde and Abiodun S. Bankole ()
Additional contact information
Abiodun S. Bankole: University of Ibadan

Future Business Journal, 2021, vol. 7, issue 1, 1-15

Abstract: Abstract This study investigates fiscal dominance and exchange rate stability in Nigeria. The period of investigation spanned 1981q1–2018q4, and the Structural Vector Autoregression (SVAR) technique was employed to test the fiscal dominance hypothesis and further examine the shock transmission effects of fiscal deficit components such as budget deficit and public debt on exchange rate movement in Nigeria. As a robustness, Autoregressive Distributed Lag (ARDL) technique was employed to analyse the shock transmission effects of these components on the movement of exchange rate in Nigeria. More so, granger causality test was conducted to trace the direction of causality among the fiscal deficit components and the exchange rates. The results show that budget deficit and changes in exchange rates in Nigeria have bi-causal relationship, while public debt could not granger cause exchange rate movement in the country. The SVAR estimates suggests that exchange rate movement in Nigeria reacted only to the shock effects of financial openness and the ARDL results indicate that both public debt and budget deficit have destabilizing effects on exchange rates in Nigeria.

Keywords: Budget deficit; Public debt; Exchange rate; Inflation; Financial openness (search for similar items in EconPapers)
JEL-codes: E61 E62 F31 F32 H68 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://link.springer.com/10.1186/s43093-021-00076-7 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:futbus:v:7:y:2021:i:1:d:10.1186_s43093-021-00076-7

Ordering information: This journal article can be ordered from
https://fbj.springeropen.com/

DOI: 10.1186/s43093-021-00076-7

Access Statistics for this article

Future Business Journal is currently edited by Soad Kamel Rizk and Hayam Wahba

More articles in Future Business Journal from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().