Output, Inflation, and Exchange Rate in Developing Countries: An Application to Nigeria

Odusola, Ayodele; Akinlo, Anthony Enisan

doi:10.1111/j.1746-1049.2001.tb00900.x

Cited by 38 publications

(22 citation statements)

References 47 publications

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“…Vo, Dinh, Do, Hoang and Phan, (2000) employed a single equation model to examine the impact of real devaluation on output in Vietnam and showed that devaluation of real exchange rate increased output in both the short and long run. Odusola and Akinlo (2001) in their study on the impact of real exchange rate on output and inflation in Nigeria found that devaluation reduced output and increased inflation. Nguyen and Kalirajan (2006), using monthly data from 1991 to 1999 and vector autoregression approach, investigated the impact of nominal effective exchange rate on inflation in Vietnam and found that the impact of nominal devaluation on inflation is positive.…”

Section: Introductionmentioning

confidence: 99%

Real Exchange Rate and Macroeconomic Performance: Testing for the Balassa-Samuelson Hypothesis in Nigeria

Omojimite¹,

Oriavwote²

2012

IJEF

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The study examine whether a link exists between the Naira real exchange rate and macroeconomic performance and test for the existence of 'Balassa-Samuelson ' (1964) hypothesis in Nigeria. Using data covereing 1970 to 2009, the Parsimonious ECM result shows that the one period lag value of technological productivity has a negative sign and is statistically significant. This suggests the existence of the Balassa-Samuelson hypothesis in Nigeria. The Johansen Cointegration Test suggests a long run relationship among technological productivity, foreign private investment, the ratio of government expenditure to GDP and the real effective exchange rate. It is thus recommended that the government and policy makers should continue to employ policies that could increase productivity in all sectors of the economy to enhance exchange value of the Naira Keywords: Real exchange rate, cointegration, Balassa-Samuelson and Macroeconomic performance IntroductionThe role of the real exchange rate in the economic performance of both developed and developing economies such as Nigeria constitutes one of the greatest macroeconomic policy debate. There is increasing agreement among economists and policy makers that while stability in the real exchange rate promotes economic growth and improved standard of living, misaligned real exchange rate hinders export growth and generates macroeconomic instability (Chowdhury, 1999). Thus, getting the exchange rate right or maintaining relative stability is critical for both internal and external balance and, hence growth in an economy. Failure to properly manage the real exchange rate induces distortions in consumption and production patterns particularly for an import dependent country. Fluctuations in real exchange rate have a destabilizing effect on the macro economy (Obadan, 2006). Private operators are also concerned about the exchange rate's fluctuations because it impacts on their portfolios, and may result in capital gains or losses (Balogun, 2007). This is because the real exchange rate reflects the international competitiveness as well as serves as nominal anchor for domestic prices. Real exchange rate misalignment affects economic activity in developing countries primarily due to the dependence of imported capital goods and specialization in commodity exports. Exchange rate policy guides investors in the best way they can strike a balance between their trading partners, and investing at home or abroad (Balogun, 2007).Despite various efforts by the government to maintain exchange rate stability in Nigeria (as well as avoiding its fluctuations and misalignment) in the last two decades, the naira exchange rate to the American dollar depreciated throughout the 1980s. For example, the naira depreciated from N0.61 in 1981 to N2.02 in 1986 and further to N8.03 in 1990. Although the exchange rate became relatively stable in the mid 1990s, it depreciated further to N120. 97, N129.36 and N133.50 in 200297, N129.36 and N133.50 in , 200397, N129.36 and N133.50 in and 200497, N129.3...

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Section: Introductionmentioning

confidence: 99%

Real Exchange Rate and Macroeconomic Performance: Testing for the Balassa-Samuelson Hypothesis in Nigeria

Omojimite¹,

Oriavwote²

2012

IJEF

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“…Adopting a VAR and other structural variants, Odusola and Akinlo (2001) examined the link between the naira depreciation, inflation and output in Nigeria. They found exchange rate depreciation to have positively affected output in the medium and long run, but negatively in the short run.…”

Section: Empirical Evidencementioning

confidence: 99%

Dynamics of the Real Exchange Rate, Inflation, and Output Growth: The Case of Malawi

Yiheyis

Cleeve

2016

IJEF

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This paper investigates the temporal causality and dynamics of real exchange rate, inflation, and output growth in Malawi, controlling for monetary growth and foreign exchange accumulation. The relationships among these variables are examined using quarterly data and the bounds testing approach to cointegration analysis. A long run relationship among the variables is observed, with the real exchange rate as the dependent variable, which is found responsive, in the long run, to the growth rate of output but not to inflation. Analysis of short-run dynamics reveals that the real exchange rate was influenced by output growth and inflation. The Granger causality analysis in a multivariate setting points to causation running from the real exchange rate to inflation and from each of these to output growth. The lagged error correction term, where included, emerged significant, providing evidence for the presence of long-run causality running interactively through it from the other variables as a group to the real exchange rate. Taken together, the results indicate the relevance of domestic economic activity, monetary policy, and foreign exchange availability for the evolution of the real exchange rate, which, in turn, is observed to have played a role in influencing domestic inflation and output growth in Malawi.

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“…Because of the complicated dynamics in the VAR, these statistics are more informative. [10] examine the link between the naira depreciation, inflation and output in Nigeria, adopting vector autoregressive (VAR) and its exchange rate system does not necessarily lead output expansion, particularly in short term. Issues such as discipline, confidence and credibility on the part of the government are essential.…”

Section: Discussionmentioning

confidence: 99%

A Multivariate Time Series Modeling of Major Economic Indicators in Nigeria

Onwukwe¹,

Nwafor²

2014

AJAMS

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One of the key objectives of every good economy, whether or not developing or developed is to achieve a high and sustainable economic growth rate coupled with the economic indicators. The research on the Multivariate Time Series Modeling of Major Economic Indicators in Nigeria, aims at providing quantitative analysis of the dynamics on currency in circulation, exchange rate, external reserve, gross domestic product, money supply and price deflator. This study utilizes secondary data obtained from the Central Bank of Nigeria, Statistical Bulletin (vol. 21: 2010), of all variables investigated in the model. The sample covers quarterly data from 1981 to 2010. The study employed the newly developed multivariate time series estimation technique via Vector Autoregressive modeling to model the economic indicators in Nigeria. The empirical result yields a stable and sustainable economic model for the six economic variables in the study. The Granger causality analysis indicates that there exists unidirectional and bidirectional causality between the economic variables. Gross domestic product and external reserve was seen as a good predictor to other economic indicators. The relationship between these economic indicators is however significantly determined which is positive in either direction. The empirical model provides forecast value for the next two years.

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Output, Inflation, and Exchange Rate in Developing Countries: An Application to Nigeria

Cited by 38 publications

References 47 publications

Real Exchange Rate and Macroeconomic Performance: Testing for the Balassa-Samuelson Hypothesis in Nigeria

Real Exchange Rate and Macroeconomic Performance: Testing for the Balassa-Samuelson Hypothesis in Nigeria

Dynamics of the Real Exchange Rate, Inflation, and Output Growth: The Case of Malawi

A Multivariate Time Series Modeling of Major Economic Indicators in Nigeria

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