Can higher reserves reduce exchange rate volatility in Nigeria? A GARCH-MIDAS approach
0
조회
0
다운로드
0
인용
0
참고문헌
키워드
초록
This study examines the relationship between external reserves and exchange rate volatility in Nigeria, with data from 2006 to 2022. Using the GARCH-MIDAS approach, we conduct distinct analyses covering the full sample, the period of the Global Financial Crisis (GFC), and the COVID-19 pandemic to explain the dynamics of the relationship between our variables during periods of economic stability and turbulence. Our findings provide strong evidence that higher external reserves can mitigate exchange rate volatility in Nigeria, particularly during periods of economic stress. To enhance exchange rate stability, the study recommends that policymakers should prioritize reserve accumulation, diversify the economy beyond oil, strengthen the Sovereign Wealth Fund, and strategically intervene in the foreign exchange market.
Abstract
This study examines the relationship between external reserves and exchange rate volatility in Nigeria, with data from 2006 to 2022. Using the GARCH-MIDAS approach, we conduct distinct analyses covering the full sample, the period of the Global Financial Crisis (GFC), and the COVID-19 pandemic to explain the dynamics of the relationship between our variables during periods of economic stability and turbulence. Our findings provide strong evidence that higher external reserves can mitigate exchange rate volatility in Nigeria, particularly during periods of economic stress. To enhance exchange rate stability, the study recommends that policymakers should prioritize reserve accumulation, diversify the economy beyond oil, strengthen the Sovereign Wealth Fund, and strategically intervene in the foreign exchange market.
참고문헌 (29)
- Adedokun, A, "Foreign exchange reserves and exchange rate volatility in Nigeria : A causality approach", Journal of Economics and International Finance, 10(8), pp.91~98 (2018)
- Adediran, I. A., "Carbon trading amidst global uncertainty: The role of policy and geopolitical uncertainty", Economic Modelling, 123, pp.106~279 (2023)
- Adekunle, W., "Do foreign reserves really reduce exchange rate volatility? Evidence from Nigeria", Journal of Economics and Finance, 10(2), pp.103~115 (2018)
- Al-Abri, A., "Foreign investment and real exchange rate volatility in emerging Asian countries", Journal of Asian Economics, 37, pp.34~47 (2015)
- Akpan, N. I., "External reserves accumulation and exchange rate volatility:Evidence from Nigeria", Journal of Applied Economics and Finance, 2(4), pp.45~53 (2013)
- Arunma, O, "Testimony on the global financial crisis and financial reform in Nigeria : A capital market perspective", Paper presented before the United States House of Representatives Committee on Financial Services Sub-Committee on International Monetary Policy and Trade (2010)
- Balogun, E. D., "Exchange rate policy and foreign reserves in Nigeria: An empirical study", Central Bank of Nigeria Economic and Financial Review, 47(3), pp.13~29 (2009)
- Brafu-Insaidoo, W. G, "International reserves, external debt maturity and exchange rate volatility in Ghana", Economic Change and Restructuring, 52(3), pp.181~202 (2019)
- Cady, J., "Exchange rate volatility and reserves", IMF Staff Papers, 54(4), pp.741~754 (2007)
- Precaution versus mercantilism: Reserve accumulation, capital controls, and the real exchange rate, "Choi, W. J.", NBER, ~, pp.NBER Working Paper w23341 (2017)
- Diebold, F. X., "Comparing predictive accuracy", Journal of Business & Economic Statistics, 13(2), pp.253~263 (1995)
- Durdu, C. B., "Precautionary demand for foreign assets in sudden stop economies: An assessment of the new mercantilism", Journal of Development Economics, 89(2), pp.194~209 (2009)
- Emenike, K. O, "Comparative analysis of bureaux de change and official exchange rates volatility in Nigeria", Intellectual Economics, 10(1), pp.28~37 (2016)
- Engle, R. F., "Stock market volatility and macroeconomic fundamentals", Review of Economics and Statistics, 95(3), pp.776~797 (2013)
- Essien, E. B., "Determinants of real exchange rate in Nigeria (1970-2011): A behavioral equilibrium exchange rate approach", International Journal of Social Sciences, 10(2), pp.1~27 (2016)
- Frenkel, J., "Optimal international reserves: A stochastic framework", The Economic Journal, 91(362), pp.507~514 (1981)
- Grossmann, A., "The dynamics of exchange rate volatility: A panel VAR approach", Journal of International Financial Markets, Institutions & Money, 33, pp.1~27 (2014)
- International reserve accumulation: Balancing private inflows with public outflows, "Han, B.", Bank of Korea, ~, pp.Bank of Korea Working Paper 2023-6 (2023)
- Harvey, D., "Testing the equality of prediction mean squared errors", International Journal of Forecasting, 13(2), pp.281~291 (1997)
- Jeanne, O., "The optimal level of international reserves for emerging market countries: A new formula and some applications", The Economic Journal, 121(555), pp.905~930 (2011)
- Jeanne, O., "Optimal reserves in financially closed economies", Journal of International Money and Finance, 104, pp.102178~ (2020)
- Jeanne, O., "Global financial cycle and liquidity management", Journal of International Economics, 146, pp.103736~ (2023)
- Li, D., "Forecasting stock volatility with economic policy uncertainty: A smooth transition GARCH-MIDAS model", International Review of Financial Analysis, 88, pp.102708~ (2023)
- Mordi, C. N., "Challenges of exchange rate volatility in economic management in Nigeria", The CBN Bullion, 30(3), pp.17~26 (2006)
- The determinants of exchange rate volatility in South Africa, "Mpofu, T. R.", Economic Research Southern Africa, ~, pp.Economic Research Southern Africa Working Paper 604 (2016)
- Can higher reserves help reduce exchange rate volatility?, "Nowak, M.", IMF, ~, pp.IMF Working Paper No. 2004 (2004), 189
- Oaikhenan, H. E., "Factors explaining exchange rate volatility in Nigeria: Theory and empirical evidence", Economic and Financial Review, 53(2), pp.3~15 (2015)
- Oladipo, O. S., "Foreign reserves and exchange rate volatility: The Nigerian experience", International Journal of Economics and Finance, 3(3), pp.22~31 (2011)
- Tumala, M. M, "Climate change and fossil fuel prices: A GARCH-MIDAS analysis", Energy Economics, pp.106792~ (2023)