The Determinants of Foreign Reserves in Nigeria (Review Completed - Accepted)
It has been seen that Foreign exchange reserves adequacy is a key component of good macroeconomic management. The modified version of the buffer stock model was applied to assess the determinants of foreign reserve in Nigeria. The study regressed foreign reserve variable on macroeconomic variables: real income, interest rate differential (a measure of opportunity cost), exchange rate volatility, financial openness, current account vulnerability, benchmark stock of reserves, and the demand for foreign exchange. In order to avoid any spurious regression results, the time series data from 1970 -2010 was subjected to stationarity tests. The ADF cointegration procedure used suggested the existence of long run relationships. Hence, the short run dynamics was examined by means of an error correction model. The empirical evidence shows that growth in Nigeria’s foreign reserves is not influenced in the long run by current account vulnerability (proxied by trade opennes), the opportunity cost of holding reserves (DID) and the benchmark stock of reserves but by other determinants such as the real Gross Domestic Products (Y), exchange rate volatility (Ev), financial openness (Fop), and the demand for foreign exchange (DFex).
Keywords: Benchmark, Buffer Stock, Cointegration, Determinants, Error Correction, Foreign Reserves, Long-Run, Short-Run
Inflation Expectations and Interest Rate Variation in Nigeria: An Econometric Assessment of the Evidence (Published)
This study examines and empirically estimates the relationship between inflationary expectations and the variations in interest rate in Nigeria using the Generalized Method of Moment (GMM) estimator. In line with the study objective, we hypothesize that interest rate variations have no significant impact on inflation expectations in Nigeria. The results of empirical study indicate that the effect of interest rate variation on expected inflation in Nigeria is negative and significant. The conclusion is that variation in prime lending is a determining factor of inflation expectations in Nigeria. Accordingly, the central monetary authority, that is, the Central Bank of Nigeria (CBN) should persistently vary the prime lending rate in order to check inflation expectations in the country. As part of the CBN’s statutory duties, there is need for the CBN to embark on the implementation of policies that reduce adverse inflationary trends in the economy and this it does by raising the cost of borrowing to commercial banks and thereby curtailing the capacity of commercial banks to expand credit.
Keywords: Dynamic Model, Expected Inflation, Interest Rate Variation, Long-Run, Short-Run