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NIGERIAN JOURNAL OF CONTEMPORARY PUBLIC POLICY

Year: 2014|   Volume No: 10|   ISSN: 0795-0330|   Page No: 4


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Title:  MACROECONOMIC SHOCKS AND EXCHANGE RATE FLUCTUATION IN NIGERIA: EVIDENCE FROM STRUCTURAL VECTOR-AUTO REGRESSION (SVAR)

IBRAHIM, K.S 

DEPARTMENT OF ECONOMICS,  AHMADU BELLO UNIVERSITY ZARIA

ABSTRACT

This paper clarifies the concept of macroeconomic shocks affecting real exchange rate, by identifying four structural shocks; nominal, relative demand, supply and oil price shocks the period 1996q1-2013q4. The short run and long run impact of these shocks on relative output, relative price, real exchange rate fluctuations are broadly consistent with the implications of the Mundel - Fleming - Dornbusch type model that provide the necessary backdrop for the identification restrictions used in this work. The identified shocks suggest that long term movement in real exchange rate has been primarily driven by relative demand shock. The finding that real shocks are predominant in driving real exchange rate movements implies that policy makers  need  to focus more  on  the factors that  drive  the real  side  of  the economy in  order  to  stabilize  the foreign  exchange market. 

SUMMARY:

This paper clarifies the concept of macroeconomic shocks affecting real exchange rate. Four structural shocks are identified; nominal, relative demand, supply and oil price shocks. The short run and long run impact of these shocks on relative output, relative price, real exchange rate fluctuations are broadly consistent with the implications of the Mundel - Fleming - Dornbusch type model that provide the necessary backdrop for the identification restrictions used in this work. The identified shocks suggest that long term movement in real exchange rate has been primarily driven by relative demand shock that has played significant role in explaining episodes of appreciation/depreciation of real exchange rate and how it led to significant changes in the implied equilibrium exchange rate. However, while monetary shocks do not affect the long run real exchange rate, in the short-run they seem to have had an expansionary effect that led to appreciating pressure on the exchange rate. The finding that real shocks are predominant in driving real exchange rate movements implies that policy makers  need  to focus more  on  the factors that  drive  the real  side  of  the economy in  order  to  stabilize  the foreign  exchange market.   

Correspondence:

 ibroks301@gmail.com  

 

 

 


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