CBN Journal of Applied Statistics (JAS)
Keywords
Autoregressive distributed lag, currency substitution, exchange rate
Abstract
This study investigates the relationship between exchange rate volatility and currency substitution in Nigeria, using Autoregressive Distributed Lag (ARDL) model. After accounting for the presence of structural breaks, evidence from the findings shows that domestic interest rate and expected changes in exchange rate are important determinants of currency substitution. In addition, there is empirical support for a positive relationship between exchange rate volatility and currency substitution both in the short- and long-run. This implies that higher real exchange rate volatility is associated with an increased level of currency substitution. In view of these findings, the paper calls for sustained efforts by the monetary authority in containing exchange rate volatility and inflation as a way of curbing the spate of currency substitution in the country
Publication Title
CBN Journal of Applied Statistics
Issue
2
Volume
11
First Page
1
Last Page
28
Recommended Citation
Ajibola, Isaiah O.; Udoette, Sylvanus U.; Muhammad, Rabia A.; and Anigwe, John O.
(2020)
"Currency Substitution and Exchange Rate Volatility in Nigeria: an Autoregressive Distributed Lag Approach,"
CBN Journal of Applied Statistics (JAS): Vol. 12:
No.
1, Article 8.
Available at:
https://dc.cbn.gov.ng/jas/vol12/iss1/8