Economic and Financial Review
Publisher
Central Bank of Nigeria, Research Department.
Keywords
Purchasing power parity, Price Level, Inflation, Nigeria.
Abstract
This study basically extends the work of Obaseki (1998) by including an additional variable to capture the impact of changes in exchange rate regime. The paper undertakes an empirical examination of the long-run co-movement in naira exchange rate and relative price levels of Nigeria and USA. The impact of the policy swap from a system of exchange rate control to a market based system (captured by a dummy variable) is investigated using an error correction model. The outcome reveals the applicability of the PPP using Nigerian data. From the analysis, the prevailing nominal exchange rate during the period closely approximates that suggested by PPP. Furthermore, the change in exchange rate regime had a considerable effect in re-aligning the naira exchange rate. The implication of this is that continued floating of the naira will in the long-run, bring its exchange rate to equilibrium.
Publication Title
CBN Economic and Financial Review (EFR)
Issue
2
Volume
43
Recommended Citation
Ononugbo, M. C. (2005). Purchasing power parity and exchange rate in Nigeria: a regime switching approach. Economic and Financial Review, 43(2), 73-112.