Impact of Exchange Rate Variation on Aggregate Demand in Nigeria
Chapter One
OBJECTIVES OF THE STUDY
The specific objective of this economic study are:
- To ascertain the impact of exchange rate variations on aggregate demand.
- To estimate if there exists any casual relationship between exchange rate and aggregate demand.
CHAPTER TWO
REVIEW OF RELATED LITERATURE
Introduction
Despite the saturation of literatures with studies on exchange rate volatility, the lists are still very scanty with respect to developing countries. Bakoulas, et al., (2002) examined the impact of exchange rate fluctuations on the volume and variability of trade flows and they concluded that exchange rate volatility discourages expansion of volume of trade thereby reducing its benefits. Eichengreen and Lablang, (2003) carried out a research on twelve countries over a period of 120 years and found strong inverse relationship between exchange rate stability and economic growth. They concluded that the results of each estimates strongly depend on time period and the sample. Schnabel (2007) identified robust evidence through panel estimation that the exchange rate stability is associated with more growth in the European monetary unit (EMU) periphery. The evidence according to him is strong for emerging Europe which has moved to more stable environment. David et. al., (2010) examined the effects of exchange rate fluctuations on the Nigerian manufacturing industries. They employed a multiple econometric tools which revealed a negative relationship between exchange rate volatility and the manufacturing performance. Jin (2008) carried out a comparative study of exchange rate stability and volatility and found out that the appreciation of the exchange rate increases the gross domestic product (GDP) in Russia while it reduces the gross domestic product (GDP) in Japan and China. Razazadekasalani et al., (2011) identified in Iran that during stagnation and low price period that the depreciation of currency have positive and significant effect on real GDP while depreciation of currency have significant effects on real GDP in high price period. Aliyu (2011) found out that appreciation of exchange rate exerts positive influence on real economic growth in Nigeria. Carrera and Vuletin (2003) seek to analyze the relationship between exchange rate regimes and short term volatility of the effective real exchange rate. They tried to set out the relative importance of these links specifically by analyzing the exchange rate regimen influence on real exchange rate (RER) volatility using a dynamic panel date analysis. A sample of 92 countries for the period 1980-1999 was considered. The study revealed that other variables influences real exchange rate (RER) volatility and it also analyzed the persistence of shocks in real exchange rate (RER). The study further found evidence of more openness, acceleration in per capita Gross Domestic Product (GPD) growth, reduction and volatility. Evidence from the study also supports the view that the analysis of the dynamics of the exchange rate regime needs to differentiate between developing and developed countries. Benita and Lauterbach (2007) studied the daily volatility of exchange rate between the United States of America dollar and 43 other currencies in 1990-2001. This study used several macroeconomic variables to proxy for the domestic economy uncertainty, wealth and openness to international markets as controls in the analysis. The main findings of the study were that exchange rate volatility was positively correlated with real domestic interest rate and with the degree of the central bank intervention. In the panel, the study finds positive correlation between exchange rate volatility, real interest rates and the intensity of the central bank intervention. In Nigeria, studies have been conducted to estimate exchange volatility as was predicated in the studies of Akpokodje, 2009. Aliyu 2010, Aliyu 2009a, Aliyu 2009b, Ogunleye 2009, Olowe 2009, Yinusa and Akinlo 2008, Yinusa 2004 and Yinusa, 2004. Most of the studies in exchange rate volatility in Nigeria measure the impact of exchange rate volatility on trade balance with little attention to other macroeconomic variable shocks.
CHAPTER THREE
RESEARCH METHODOLOGY
INTRODUCTION
In this chapter, we described the research procedure for this study. A research methodology is a research process adopted or employed to systematically and scientifically present the results of a study to the research audience viz. a vis, the study beneficiaries.
RESEARCH DESIGN
Research designs are perceived to be an overall strategy adopted by the researcher whereby different components of the study are integrated in a logical manner to effectively address a research problem. In this study, the researcher employed the survey research design. This is due to the nature of the study whereby the opinion and views of people are sampled. According to Singleton & Straits, (2009), Survey research can use quantitative research strategies (e.g., using questionnaires with numerically rated items), qualitative research strategies (e.g., using open-ended questions), or both strategies (i.e., mixed methods). As it is often used to describe and explore human behaviour, surveys are therefore frequently used in social and psychological research.
POPULATION OF THE STUDY
According to Udoyen (2019), a study population is a group of elements or individuals as the case may be, who share similar characteristics. These similar features can include location, gender, age, sex or specific interest. The emphasis on study population is that it constitutes of individuals or elements that are homogeneous in description.
This study was carried to examine impact of exchange rate variation on aggregate demand in Nigeria. CBN in Abuja form the population of the study.
SAMPLE SIZE DETERMINATION
A study sample is simply a systematic selected part of a population that infers its result on the population. In essence, it is that part of a whole that represents the whole and its members share characteristics in like similitude (Udoyen, 2019). In this study, the researcher adopted the convenient sampling method to determine the sample size.
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
INTRODUCTION
This chapter presents the analysis of data derived through the questionnaire and key informant interview administered on the respondents in the study area. The analysis and interpretation were derived from the findings of the study. The data analysis depicts the simple frequency and percentage of the respondents as well as interpretation of the information gathered. A total of eighty (80) questionnaires were administered to respondents of which only seventy-seven (77) were returned and validated. This was due to irregular, incomplete and inappropriate responses to some questionnaire. For this study a total of 77 was validated for the analysis.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
Introduction
It is important to ascertain that the objective of this study was to ascertain impact of exchange rate variation on aggregate demand in Nigeria. In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing impact of exchange rate variation on aggregate demand in Nigeria
Summary
This study was on impact of exchange rate variation on aggregate demand in Nigeria. Two objectives were raised which included: To ascertain the impact of exchange rate variations on aggregate demand and to estimate if there exists any casual relationship between exchange rate and aggregate demand. A total of 77 responses were received and validated from the enrolled participants where all respondents were drawn from CBN, Abuja. Hypothesis was tested using Chi-Square statistical tool (SPSS).
Conclusion
Understanding exchange rate behavior, with particular focus on the degree and magnitude of its volatility is important for Nigeria, given its structural dependence on the external sector. An increased volatility in the exchange rate of the naira would create much concerns over the speculative attack and its attendant bubble in the foreign exchange market. The implication is the adverse impact on the growth of exports, output, and its potency at undermining the effectiveness of monetary policy management, in view of the pass-through effects of exchange rate to domestic prices. To this extent, the policy objectives, which are directed at exchange rate stability, would benefit immensely from empirical research directed at investigating the true behaviour of the exchange rate volatility and its implication on the value of the naira. It was against this backdrop that this study, sought to investigate the impact of exchange rate volatility on naira exchange rate in Nigeria.
Recommendation
Exchange rate management should be credible. When bounds are set, market actors and stakeholders, in general, should have the confidence that intervention rules to defend the naira are transparent, consistent and credible.
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