Determinants of inflation, exchange rate, and output in nigeria. This development shows that the depreciation of the naira has a role to play. Please, sit back and study the below research material carefully. The analysis performed was based on a rational expectation framework that incorporates the fiscal role of exchange rate. The depreciation of a countrys currency should foster increased production output, the cbn. Pdf exchange rate depreciation and inflation in nigeria 1986. An appreciation in the exchange rate will tend to reduce inflation. It is important to understand the full implications of opening up the. Uniprojects aim of providing this naira exchange rate depreciation and domestic inflation in nigeria project research material is to reduce the stress of moving from one school library to another all in. Section 5 concludes the paper, and proffers policy recommendations. This implies that exchange rate depreciation can bring about an increase in inflation rate in nigeria.
Effects of changes in exchange rate on the economy. Under the recent economic reforms in india, not only have we liberalised the industrial sector but have also opened up the economy, made our currency convertible and allowed exchange rate to adjust freely. The effects of exchange rate change on the trade balance in. D department of economics, ambrose alli university, ekpoma, nigeria tel. Exchange rate volatility on investment and growth in nigeria, an empirical analysis by adelowokan oluwaseyi a. Effect of exchange rate on inflation rate in nigeria during the period. During the observation period from 1979 to 2019, the average inflation rate was 19. Gdp growth rate, exchange rate, interest rate and rate of inflation in nigeria 1986 20 year gdp growth rate exchange rate interest rate rate of inflation 1986 3. Naira exchange rate in order to achieve its objective of maintaining price stability because domestic prices inflation and interest rates are very responsive to exchange rate fluctuations.
This is when exchange rate changes so that a unit of its currency can buy fewer units of foreign currency. Naira depreciation is positive, and has significant longrun effect on inflation in nigeria. Var money supply, domestic price level, exchange rate index, foreign price in. The research work critically examined the extent to which naira exchange rate depreciation had affected domestic inflationary rate in nigeria between 1985 2000. Though nigeria inflation rate fluctuated substantially in recent years, it tended to increase through 1999 2018 period ending at 12. Assessing the impact of nigerias naira depreciation on output and. Adf, pp and kpss test of unit root, johansen julius cointegration test, vecm, granger causality test, impulse response function and variance decomposition.
Development of inflation rates in nigeria the inflation rate for consumer prices in nigeria moved over the past 40 years between 5. Nigerias inflation has been higher than the average for african and subsaharan countries for years now, and even exceeded 16 percent in 2017 and a real, significant decrease is nowhere in. The analysis performed was based on a rational expectation framework that incorporates the fiscal role of. The issue of currency depreciation rate on interest rate. As a result of depreciation devaluation, prices of imported goods rise. Nigerian naira, such that depreciation of the naira appears as a decline in the. Jul 18, 2016 home news nigerias inflation rate hits 16. Varmoney supply, domestic price level, exchange rate index, foreign price in. The devaluation or depreciation of currency tends to raise the price level in the country and thus increase the rate of inflation. According to news sources, nigerian inflation as at may 2015 is. A depreciation means the currency buys less foreign exchange, therefore, imports are more expensive and exports are cheaper. Pdf assessing the impact of nigerias naira depreciation on. Nigeria inflation rate 19962020 data 20212022 forecast.
Exchange rate volatility on investment and growth in. Our analysis of the foreign exchange rate of the local currency indicated that the value of the naira depreciated against the us dollar by 15. Effects of exchange rate fluctuations on economic growth. The importance, effect, causes, relationship, comparison, history, role, solutions are discussed. Effect of naira rate on economic growth in nigeria godfrey okoye. The annual inflation rate in nigeria rose for the fifth straight month to 12. Kremers april 2004 abstract this working paper should not be reported as representing the views of the imf.
The pegging of, inflation in nigeria can be said to be a direct result of the policies of the countrys governments to stimulate a fast rate of economic growth and development, since 1951 when the ministerial government was introduced between 1984 and 1986, the naira was quoted against dollar and pounds as the only intervening currencies which was in line with the international monetary fund. It was the highest inflation rate since april of 2018, largely driven by the effects of the border closure and the new vat tax rate. Inflation rates across emerging economies enjoying higher growth rate like nigeria are as follows. The information collected for the inflation rate consumer prices of nigeria has been obtained from the central intelligence agency. Thereafter, domestic or internal causes like increase government expenditures, raising domestic credit creation and supply, bottlenecks such as shortage of raw materials and spare parts worsened the situation. Directly after the peg was abandoned on 20 june, the currency lost over 40% of its value against the usd and fell to 282 ngn per usd. Therefore, exchange rate of currency is the link between domestic and foreign prices of goods and services. Abstract this paper empirically examines the impact of exchange rate volatility on inflation in nigeria using annual time series data from 1986 2012.
Exchange rate depreciation and the structure of sectoral prices in nigeria under an. There are two main types of exchange rates in nigeria. Consequently, efforts should be geared towards keeping inflationary rate at a single digit level to enhance the growth and development of nigeria economy and to ensure that macroeconomic activities are kept alive. The impact of exchange rate on nigeria nonoil exports. This is approved for students in accountancy, business, computer science, economics, engineering, arts. Naira depreciation is positive, and has significant longrun effect on. Therefore, in this study, the researcher examined the trend of inflation and exchange and the relationship between the two variables. The nigerian national currency naira has depreciated by over 7000 per cent. Dollarization, inflation and interest rate in nigeria econstor. The dynamics of money supply, exchange rate and inflation. Exchange rate depreciation and inflation in nigeria 19862008.
Also, exchange rate can either appreciate or depreciate. Abstract this paper examines the effect of exchange rate volatility on investment and growth in nigeria over the period of 1986 to 2014. Though nigeria inflation rate fluctuated substantially in recent years, it tended to decrease through 1969 2018 period ending at 12. This has affected the demand and supply sides of the economy. Get free research paper on the effect of naira devaluation on small and medium scale enterprises in nigeria project topics and materials in nigeria. The inflation rate consumer prices of nigeria is 11. Nigerian exchange rate policy dilemma by bismarck rewane. This challenge brought about by exchange rate fluctuations is eventually leading to the devaluation of the naira. Folawewo and osinubi 2006 examined the efficacy of monetary policy in controlling inflation rate and exchange instability. Nov 20, 2019 nigerias inflation has been higher than the average for african and subsaharan countries for years now, and even exceeded 16 percent in 2017 and a real, significant decrease is nowhere in. This is the price at which one country exchanges its currency for other currencies. Based on the findings of this study, it was recommended among others that companies should be objective in their choice of the methods and rate of depreciation to be applied to avoid using the wrong method or understating the rate as the case may be. The dynamics of money supply, exchange rate and inflation in.
Impact of interest rate on economic growth in nigeria. The effects of exchange rate change on the trade balance. The main objective of this study is to critically find out the impact of persistent depreciation of the naira currency on the growth of nigeria economy. Fdi, fpi and export were used as independent variables while inflation rate is the dependent variable. Naira exchange rate depreciation and domestic inflation in nigeria author. Gdp the chilean pension system, while in nigeria, domestic investment contributes about 53. Jul 18, 2016 the inflation rate in africas largest economy increased to 16. It was the highest inflation rate since april 2018, as food prices also increased the most in nearly two years 14.
Whereas the nigerian monetary authorities fixed the official exchange rate at n196 to a dollar, there is today a near 50% differential in the parallel market rate to the official rate. The effects of exchange rate change on the trade balance in croatia. Pdf inflation, interest rates and economic growth in nigeria. There is need therefore for monetary policy reform exchange rate reform, effective inflation in. The research found that exchange rate depreciation, money supply and real gross domestic product are the main determinants of inflation in nigeria, and that naira depreciation is positive, and has. Exchange rate depreciation and inflation in nigeria 1986. Pdf exchange rate depreciation and inflation in nigeria. The effects of exchange rate change on the trade balance in croatia prepared by tihomir stucka1 authorized for distribution by jeroen j.
While section four describes the methodology of research, section five is on results, policy implications and conclusion. The inflation rate in africas largest economy increased to 16. Journal of emerging issues in economics, finance and. But studies on institutional causes of inflation causes emanating from product market and labour market sources on nigeria are not very visible.
Section 3 presents the methodology, while section 4 presents the findings. Foreign exchange rate, exchange rate, inflation rate, nigeria. Exchange rate depreciation and nigeria economic performance after structural adjustment programmes saps ismaila, mohammed ph. Focusing on uganda, elbadawis, 1990 research revealed that rapid monetary expansion and the precipitous depreciation of the parallel exchange rate were the principal determinants of. There is need therefore for monetary policy reform exchange rate reform, effective inflation in nigeria. Naira exchange rate depreciation and domestic inflation in nigeria includes abstract and chapter one, complete project material available naira exchange rate depreciation and domestic inflation in nigeria abstract the research work critically examined the extent to which naira exchange rate depreciation had affected domestic inflationary rate in nigeria between 1985 2000. Exchange rate volatility and inflation upturn in nigeria. The main objective of this study is to critically find out the impact of persistent depreciation of the naira currency on the growth. Nigeria, cointegration, exchange rate, inflation, output. The views expressed in this working paper are those of the authors and do not necessarily represent.
The impact of exchange rate fluctuation on the nigerian. Nigeria exchange rate naira depreciates drastically following scrapping of currency peg in june. Dollarization, inflation, interest rate, svar, nigeria. The annual inflation rate in nigeria rose for the seventh straight month to 12. Naira exchange rate depreciation and domestic inflation in. There is significant or positive relationship between exchange rate depreciation and domestic inflation in nigeria. The impact of currency depreciation rate on inflation.
With the inelastic supply of domestic output, inflation inevitably resulted. Naira exchange rate depreciation and domestic inflation in nigeria project material. Ordinary least square method and ttest was used to test the variables most likely to impact on economic growth in nigeria due to inflation. This paper therefore investigates the relationship between exchange rate depreciation and inflation in nigeria for the period 198020, by applying cointegration test. Appreciation in the exchange rate occurs if less unit of domestic currency exchanges for a unit of foreign currency while depreciation in exchange rate occurs if. The impact of foreign investments on domestic inflation in. Import prices cheaper why a depreciation causes inflation. We find that, conditional on the amount of debt issued in foreign currency, an exchange rate depreciation. However, the year 1986 was a transformational year in the exchange rate policy of nigeria due to the structural adjustment programme sap that was put in place to address the structural imbalance in the economy.
Pdf exchange rate policy and nigerias economic growth. Nigerians want foreign transfer payment in dollars rather than in nigerian naira. Pdf assessing the impact of nigerias naira depreciation. The monetary authority introduced the indirect monetary instruments in order to control the interest rate and the rate of inflation. For example, the nigeria naira has exchange rate against the u. Based on the findings of this study, it was recommended among others that companies should be objective in their choice of the methods and rate of depreciation to be applied to avoid using the wrong method or. Inflation as measured by the consumer price index reflects the annual percentage change in the cost to the average consumer of acquiring a basket of goods and services that may be fixed or changed at. Assessing the impact of nigerias naira depreciation 701 10 this problem has been noted in the earlier studies by bernake 1986, p. The government of the day in nigeria usually relies on foreign exchange reserve generated from crude oil to manage excessive volatility in exchange rate and recently. In short, positive exchangerate shock, such as an unan ticipated depreciation of the domestic currency will lead to an unambiguous increase in price. Does the central bank lost it monetary independence or does it do as the politicians want it to do. Naira depreciates drastically following scrapping of currency peg in june august 18, 2016 the naira has been weakening against the u. This post monitors and report the current inflation rate in nigeria.
815 683 334 828 1503 1084 445 964 827 1204 639 595 1234 957 180 1168 1114 143 1487 159 1469 925 931 579 1217 420 4 1348 1294 1123 476 63 1325 974 626 1042 908 1105 410 712