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THE ANALYSIS OF EXCHANGE RATE FLUCTUATION ON NIGERIA’S BALANCE OF PAYMENTS
Abstract
Exchange rate volatility is a widely discussed topic amongst economist and finance experts as it is a very important phenomenon in every economy, especially amongst developing nations. This research sets out to investigate the relationship between exchange rate volatility and Nigeria’s balance of payment. The data employed was sourced from the Central Bank of Nigeria’s statistical bulletin (2015) and the National Bureau of Statistics (NBS). The sample size employed for the study covered a period of 30years (1985-2015). The estimation techniques employed in this research are; the Johansen co-integration test for long-run relationships, while both ARCH and GARCH were also employed to test for volatility of the Exchange Rates. The result showed there was no long-run relationship between Exchange Rate and the Balance of Payment position of the Nigerian Economy during the period under review, while the coefficient of the ARCH effect is found to be statistically significant at 10%, the GARCH effect however was found to be statistically insignificant. Therefore it was recommended amongst other things that exchange rate liberalization should be adopted by the monetary authorities in order to promote fairness and attract foreign investment which will ultimately lead to a favorable balance of payment in the Nigerian Economy.
Keywords: Exchange Rate, Balance of payment, Interest rate, Volatility, ARCH and
GARCH.