New evidence on the effect of exchange rate volatility on trade. Exchange rate volatility and stock market performance in. At the present time, new members of the eu are trying to achieve this stability. Having obtained the volatility of exchange rate through the garch 1,1 techniques, the ecm was used to examine. There are many factors contributing to real exchange rate volatility. No matter which way currencies zig or zag, it seems there is always an analyst with a quotable, ready explanation. Determinants of stock market volatility and risk premia.
Exchange rate volatility and trade flows some new evidence. Asher 2012 examined the impact of exchange rate fluctuation on the nigeria economic growth for period of 1980 2010. The naira exchange rate depreciation and volatility is among the vast macroeconomic maladjustments which have unfolded in the nigerian economy in the recent past. Exchange rates play a vital role in a countrys level of trade, which is critical to most every free market economy in the world. The macro economic variables are inflation, exchange rate gdp and interest rate. The result further indicates that there is evidence of long run relationship between real exchange rate and two explanatory variables gross domestic product growth rate and trade openness. Increases in interest rates cause a countrys currency to appreciate because higher interest rates provide higher rates to lenders, thereby attracting more foreign capital, which causes a rise in exchange rates. The objective of this study is to determine the sources of exchange rate volatility in turkey for the period 19742016. The main objective of this study is to investigate the relationship of foreign direct investment fdi with exchange rate and exchange rate volatility. Given that agricultural output is influenced by prices among other factors, the depreciation of the naira and abolition of the commodity boards were expected to. Exchange rate volatility and trade flows international monetary. The determinants of real exchange rate volatility in nigeria. Oct 28, 2015 the naira exchange rate depreciation and volatility is among the vast macroeconomic maladjustments which have unfolded in the nigerian economy in the recent past.
It aimed at determining functional relationships that exist between gdp, wage rate, interest rate and relative openness index, and the extent to which each variable has influenced fdi inflow to. Determinants of cash crop output volatility in nigeria. The cardinal focus is to ascertain the determinants of exchange rate volatility instability in a developing economy with particular reference to nigeria as well as assess the implications of volatility of real exchange rate on selected macroeconomic variables. The determinants of real exchange rate volatility in. The pricing of derivatives generates excess implied volatility of underlying. Empirical investigation on exchange rate volatility and trade flows. Annual data on infrastructure, government expenditure, trade openness and market size, were sourced from the world development indicators wdi of the world bank. Determinants of exchange rate volatility in south africa. Causes of interest rate volatility and its economic.
Juraj stanck cergeeiy january 2006 abstract exchange rate stability is not only a criterion for joining the emu but also a fundamental property of stable economic development. In a similar study, akpan 2008 investigated foreign exchange. The paper examines the determinants of interest rate spreads in nigeria using a panel of 12 commercial banks for the period 19862007. Consequently sustained exchange rate volatility was thought to have led to currency crises. Exchange rate depreciation, budget deficit and inflation the nigerian experience b fy.
Studies have revealed that economic openness, terms. The study found a positive relationship between interest rate, inflation, gdp and fdi over. Cbn lists inflation, others as determinants of exchange rate. Hopper r eaders of the financial press are familiar with the gyrations of the currency market. Having obtained the volatility of exchange rate through the garch 1,1. The data sourced for this study were from the central bank of nigeria statistical bulletin and nigeria stock exchange publications.
This study examines the determinants of exchange rate instability volatility of real exchange rate in a developing economy. The determinants of interest rate spreads in nigeria. The cardinal focus is to ascertain the determinants of exchange rate volatility instability in a developing economy with particular reference to nigeria as well as assess the implications of volatility of real exchange rate on. Essang 1973 and muroi 1989 also correlate crop output volatility in nigeria to poor policy on technology and land use acts. The results suggest that cash reserve requirements, average loans to average total deposits, remuneration to total assets and gross domestic product have positive effect on interest rate spreads. It aimed at determining functional relationships that exist between gdp, wage rate, interest rate and relative openness index, and the extent to which each variable has influenced fdi inflow to nigeria. This paper examines the determinants of foreign direct investment fdi in nigeria during 1980 2011. In a similar way, several empirical evidences relate output volatility to inflation rate. Exchange rate is an important macroeconomic policy instrument which effects all macroeconomics variables.
Mpofuy university of cape town april 14, 2016 abstract this paper investigates the determinants of exchange rate volatil. The impact of exchange rate fluctuation on the nigerian. It is against this background that the study examined the impact of exchange rate on stock market performance using monthly data of mcap as indicators for stock market performance and monthly data on exchange rate as the parameter for measuring exchange rate volatility. The study examined the short and longrun determinants of nominal exchange rate fluctuations in kenya. Determinants of exchange rate instability in a developing. Pdf the determinants of real exchange rate volatility in. Friedman 1953 had argued that exchange rate instability is a manifestation of economic volatility. Exchange rate misalignment on nigerias economic growth using quarterly. The study employed the time series quarterly data for the period of 1970q12014q4. We discuss the implications of the long and short run determinants of exchange rate volatility and the volatility growthnexus. Having obtained the volatility of exchange rate through the garch 1,1 techniques, the ecm was used to examine the various determinants of exchange rate volatility in nigeria, while the co. Conceptual framework exchange rate is the price of a nation. Anita mirchandani 20 analyzed the impact of macro economic determinants of exchange rate volatility in india.
Section 3 outlines the empirical strategy and model specifications while section 4 presents the empirical results. This paper therefore, investigates the determinants of real exchange rate volatility in nigeria from 1981 through 2008. Saharan africa excluding south africa and nigeria shows the highest average. Specific content for the schematic asset price model of the exchange rate is provided in sec. Determinants of foreign direct investment in the nigerian. According to aliyu 2009, determinants of exchange rate include differentials in inflation rate, differentials in interest rate, current. The determinants of stock price volatility are estimated using the garch technique. Having obtained the volatility of exchange rate through the garch. This paper investigates the determinants of real exchange rate volatility in nigeria. Determinants of foreign direct investment in nigeria 1980. Empirical analysis of exchange rate volatility and nigeria. Mordi said other determinants of exchange rate include economic fundamentals like gross domestic products gdp growth rate, balance of payments position, external reserves, interest rate movements, external debt position, productivity, market.
Its objective had been the provision of a deeper understanding of the causes of interest rate volatility and whether this has effects on the nigerian economy. The result showed that real exchange rate has a positive effect on the economic growth. The determinants of real exchange rate volatility in nigeria ajao, mayowa g. The findings indicated that interest rate, previous stock return levels, money supply and exchange rate are the main determinants of stock returns in nigeria. Fdi flow into telecommunication sector, foreign exchange. A case study of pakistan mahnaz muhammad ali 1, salma shaheen 2 nosheenshahzadi 3 abstract. To achieve our objective, this paper consists of the following sections. This research sets out to investigate the relationship between exchange rate volatility and nigerias balance of payment. Adaramola 2016 examined the effect of real exchange rate volatility on export volumes in nigeria. The presumption that trade is adversely affected by exchange rate volatility depends on a number of specific assumptions and does not necessarily hold in all cases, especially in a general equilibrium setting where other variables change along with exchange rates.
Empirical investigation on exchange rate volatility and. Changes in interest rate affect currency value and dollar exchange rate. Request pdf the determinants of real exchange rate volatility in nigeria the naira exchange rate depreciation and volatility is among the vast. The determinants of exchange rate volatility in south africa trust mpofu ersa working paper 604 may 2016. Similarly, since the collapse of the bretton wood system in 1973, there has been a renewed interest worldwide into the study of exchange rate volatility and its determinants. Thus fluctuations in real exchange rate have strong on the economic activities. This paper investigates the determinants of real exchange rate volatility in nigeria from 1981 through 2008.
Empirical investigation on exchange rate volatility and trade flows in nigeria 26 by the ratio of total trade to nigerias gross domestic product gdp, nigeria is considered to be moderately integrated with a ratio of 45. Exchange rate volatility and stock market performance. The determinants of exchange rate volatility in south africa trust r. Abstract the paper explored causes of interest rate volatility and its implications on the socioeconomic development of nigeria for the year 2000 2005 periods. The determinants of exchange rate volatility in south africa.
This paper therefore, investigates the determinants of real exchange rate. Exchange rate depreciation and the structure of sectoral prices in nigeria under an alternative pricing regime, 198689 by olu ajakaiye and ode ojowu, research paper 25. The analysis of exchange rate fluctuation on nigerias. Price, exchange rate volatility and nigerias agricultural. Interest rate, balance of trade, inflation, fdi and gd were considered as independent over the exchange rate as dependent variable. Impact of exchange rate volatility on foreign direct investment a case study of pakistan sami ullah, syed zeeshan haider and parvez azim abstract. This study examined determinants of nominal exchange rate fluctuations in kenya using an autoregressive distributed lag ardl approach over the period 1993q3 when kenya authorized floating exchange rate to 2014q4. Empirical investigation on exchange rate volatility and trade. Given that the determinants of exchange rate volatility change from time to time. Impact of exchange rate volatility on nonoil export. 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.
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