Determinants of Exchange Rate Movements in Developing Economies

Authors

  • Agwu Sunday Okoro

Keywords:

Real Exchange Rate, Exchange Rate Movement, GARCH, Autoregressive Distributed Lag, Error Correction Mechanism

Abstract

This paper is an attempt to ascertain the drivers of real exchange rate movement in Nigeria. To achieve this, ARCH and GARCH modeling techniques were adopted to capture real exchange rate movements. The autoregressive distributed lag bounds test shows that current account balance, interest rate and money supply positively and significantly affect the movements of real exchange rate in the short-run, whereas external reserves, oil price and real economic growth negatively and significantly affect the movements of real exchange rate in the long-run. Therefore, this study concludes that external reserves, oil price and real economic growth are the major long-term drivers of exchange rate movements in Nigeria. By implication, both policy and non-policy variables exert some levels of impact on real exchange rate movements. Therefore, proper alignment of both fiscal and monetary policies is necessary for the moderation of exchange rate movements in developing economies.

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Published

2023-01-31

Issue

Vol. 6 No. 5 (2022)

Section

Articles

License

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