Parallel exchange rate market and macroeconomic performance in Nigeria: SVAR approach

Kehinde Mary Bello ()
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Kehinde Mary Bello: Obafemi Awolowo University

SN Business & Economics, 2024, vol. 4, issue 11, 1-24

Abstract: Abstract The widening gap between the parallel and official exchange rates has been an imperious issue in African countries, especially Nigeria. This continuous abnormality is generating numerous impediments to the Central Bank of Nigeria (CBN) in managing the exchange rate markets. In respect to this, the study examines the effect of the parallel currency market premium (PCMP) on macroeconomic variables in Nigeria. Quarterly data over the period 1986Q1–2019Q4 was sourced from the CBN Statistical Bulletin (2019, 2020) edition and the International Financial Statistics (2020) edition. Recursive and non-recursive structural vector autoregression (SVAR) were employed for analysis. The non-recursive analysis was used to validate the recursive for robust results. The outcome of the recursive impulse response showed that output responded positively to shocks from PCMP, while the non-recursive displayed a negative response to shocks from PCMP. The findings from the recursive variance decomposition indicated that PCMP exhibited an effect on trade balance, output, and inflation rate, but the non-recursive analysis indicated that PCMP exhibited no effect on inflation. The study recommends more exportation and less importation of goods, together with an increase in industrial production, to increase output to aid stability in the exchange rate. Therefore, policies to intensify exportation and expand industrial productivity should be addressed to boost the exchange rate and increase macroeconomic performance in Nigeria.

Keywords: Parallel currency market premium; Inflation rate; Trade balance; Output; Interest rate; SVAR; Nigeria (search for similar items in EconPapers)
JEL-codes: E42 E47 E58 F33 G15 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s43546-023-00609-y

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