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Pass-Through of Crude-oil Price Shocks to Consumer Prices in Nigeria: Pre and Post 2008 Global Financial Crisis
No full textThis study investigates the responses of consumer price index (CPI) to crude oil price shocks in the pre- and post-2008 global financial crisis. The study used the Structural Vector Autoregressive model to analyze monthly data from 2000M01 to 2019M12. The impulse response analysis showed that for pre and post-crisis periods, oil price shocks have a positive impact on CPI. This impact was an insignificant direct momentary increase in pre-crisis CPI before dissipating. Conversely, the impact on post crisis CPI response tends to be stable and long-lasting starting from the third month. The confidence bands for the post crisis CPI are large, indicating the long-lasting positive response in the CPI pose no significant threat to price stability in the long run horizon. In conclusion, CPI response varies in terms of intensity for pre and post crisis periods. In terms of level of significance, the effect of the shocks on CPI is transient and insignificant in both periods. The post crisis oil price shock is not a significant channel that created price instability in Nigeria after the crisis and this study recommend partial deregulation of energy price should be maintained. Establishing oil price –inflation pass-through, external shocks like financial crisis should be accounted fo
Money and Foreign Exchange Markets Dynamics in Nigeria: A Multivariate GARCH Approach
No full textThis study examines the money market and foreign exchange market dynamics in Nigeria by estimating the dynamic correlation and volatility spillovers between the Nigeria Naira/US Dollar Bureau De Change (BDC) exchange rate and interbank call rate with data from January 2007 to August 2019. The study employs a dynamic conditional correlation form of the GARCH model (DCC-GARCH) to assess the nature of correlation, while an unrestricted bivariate BEKK-GARCH (1, 1) form of the multivariate GARCH model is utilized to investigate shocks and volatility spillover of the rates. The estimated DCC-GARCH (1, 1) reveals that interest rate and exchange rate are dynamically linked negatively, suggesting that exchange rate (or interest rate) is inversely sensitive to interest rate (or exchange rate) in Nigeria. This result was substantiated by the estimated BEKK-GARCH(1, 1) model. Furthermore, the effects of news (shocks spillover) are bi-directional across the markets. However, volatility spillover is unidirectional, from exchange rate to interest rate, suggesting that, calming the volatility in the foreign exchange market does guarantee moderation of volatility in the money market, whereas reverse is not the case. The results underscore the growing influence of the foreign exchange market in the financial space of the Nigerian economy. Thus, the study recommends that foreign exchange policies aimed at maintaining exchange rate stability should be sustained, having found the exchange rate to be more effective in moderating interest rate volatility in Nigeria
Leveraging import substitution for economic expansion: the case of Nigeria
No full textThe objective of this paper is to describe the import substitution policies of Nigeria with a historical and analytical outlook with a view to amplifying its dimensions of impact, and recommending potential options for optimizing policy and implementation. Method The methodology adopted for this paper is descriptive and historical analysis. Comparisons were drawn from various countries policies such as Chile, Brazil, Argentina, Mexico, India, South Korea, and the Philippines and outcomes are highlighted, and then extrapolated to the Nigerian context with a view to understanding the local context in the light of peer country implementation. The results from the implementation of Nigeria\u27s import substitution policies have been varied and undulated. Specifically, in recent times, the 41 items policy, may be mixed in the short term, but strongly indicates a good outcome in the long run for the country. Domestic production, especially of commodities is on the uptick since the inception of the 41 items policy, and various other sectors, like manufacturing are witnessing significant gains in capacity expansion due to increased local demand. The Central Bank of Nigeria should harmonize its 41 items policy with other foreign exchange, currency management, and financial markets policies to ensure a coordinated focus and to forestall counteractions in outcomes on several simultaneous policy tracks. It should also measure the impact of the 41 items policy to examine and ensure that while preserving forex on one hand, the impact is not blunted on other fronts by hemorrhaging foreign exchange through leakages, round-tripping and transfer pricin
Governance, institutional quality, growth and inequality in Africa. a study of Central Bank of Nigeria
No full textThis paper examined the role of institutional quality on economic growth and reduction of inequality in Nigeria. Survey research design was adopted and data were collected through primary and secondary sources. Population of the study was 600 businesses across Nigeria. Descriptive and inferential statistics were used for data analysis. Findings revealed that the bottlenecks facing businesses in accessing loans have significant effects on business creation in Nigeria. The study concluded that lack of policies and interventions are not the problems for small businesses to obtaining funds from government, but effectiveness and efficiency of these interventions and policies
Is Central Bank of Nigeria pursuing preferential development finance? some parametric and non-parametric evidence
No full textAs encompassing as the development finance interventions of the Central Bank of Nigeria are, there appears to be a preference for the agricultural sector and the manufacturing sub-sector. The study applied the parametric ANOVA and the non-parametric Kruskal-Wallis Tests, to inferentially determine whether this is, indeed, the case. Findings, however, indicate that the intervention intensity is equal for all sectors, implying the Bank adopts a holistic, rather than preferential, approach to its development finance practice. This strategically engenders, among others, uniform development, inclusive growth and economic diversification. The interventions should be sustained and their coverage extended to other crucial sub-sectors such as mining & quarrying and education, given their strong potential for employment generation, human capital development and deepening of socio-economic inclusiveness
Determinants of Money Supply in Nigeria
No full textStudies on money supply determinants focus on the Classicists or Monetarists, Keynesians and post-Keynesians variables like income and money multiplier. This research extends the literature on money supply determinants to include the influence of financial liberalization on money supply with a reference to Nigeria between 1980 and 2019, using the Autoregressive Distributed Lag (ARDL) approach. Data used for the study were collected from the 2019 CBN Annual Statistical Bulletin. The study found that financial liberalization is an important factor in determining money supply in Nigeria, in addition to currency ratio, required reserve ratio and high-powered money. As a result, the extent of the liberalization of the financial sector matters in decisions on the regulation of money supply in the econom
Markov Regime-Switching Autoregressive Model of Stock Market Returns in Nigeria
No full textThis study is designed to model and forecast Nigeria’s stock market using the All Share Index (ASI) as a proxy. By employing the Markov regime-switching autoregressive (MS-AR) model with data from April 2005 to September 2019, the study analyzes the stock market volatility in three distinct regimes (accumulation or distribution – regime 1; big-move – regime 2; and excess or panic phases – regime 3) of the bull and bear periods. Six MS-AR candidate models are estimated and based on the minimum AIC value, MS(3)-AR(2) is returned as the optimal model among the six candidate models. The MS(3)-AR(2) analysis provides evidence of regime-switching behaviour in the stock market. The study also shows that only extreme events can switch the ASI returns from regime 1 to regime 2 and to regime 3, or vice versa. It further specifies an average duration period of 9, 3 and 4 weeks for the accumulation/distribution, big-move and excess/panic regimes respectively which is evidence of favorable market for investors to trade. Based on Root Mean Square Error and Mean Absolute Error, the fitted MS-AR model is adjudged the most appropriate ASI returns forecasting model. The study recommends investments in stock across the regimes that are switching between accumulation/distribution and big-move phases for promising returns
Impact of monetary policy on inflation rate in Nigeria: Vector Autoregressive Analysis
No full textThe Nigerian monetary authorities have implemented several monetary management policies with the aim of achieving price stability and economic growth in the country, but without success. This study was conducted to examine the impact of monetary policy management on inflation in Nigeria during the 1985- 2019. Autoregressive distributed lag analysis was employed on time series data covering the period. It was found that while monetary policy rate and foreign exchange rate impacted negatively on inflation; broad money supply impact positively on it. Therefore, the study recommended that monetary authorities should fix the exchange rate at where the value of Naira will rise. Besides, government should direct more investment on productive activities in other to increase output of goods and services in the country. This will lead to a fall in inflation rate and hence economic growth in the country
Markovian Approach to Stock Price Modelling in the Nigerian Oil and Gas Sector
No full textThe study investigates the stock price movement of quoted Nigerian oil and gas firms using the Markovian model. Specifically, the study estimates the change in likelihoods and steady-state distribution of the share prices of the firms to determine the average time spent by the share price to move to another state and the turnover rate of the selected stocks. Markov chain-based stochastic modelling approach was employed by using the daily closing share prices of all the seven oil and gas firms quoted on the Nigerian Stock Exchange from April 2017 to January 2020. The study finds that the transition probabilities and the steady-state distribution of all the firms are stationary at first-order, implying that chain depends on the previous state. The steady-state probabilities of all the firms examined exhibit relatively high price stability in the long run. The study recommends that investors with diverse attitudes to risk-taking can explore the estimated long-run prospect of the investigated stocks in making guided investment decisions
Purchasing Power Parity Approach to Exchange Rate Misalignment in Nigeria
No full textThis study examines the purchasing power parity (PPP) approach to the determination of exchange rate misalignment in Nigeria by using two variants of the PPP: the absolute PPP (aPPP) and the relative PPP (rPPP). Data on the Nigerian Naira to US Dollar (N/$), British Pound (N/£) and Chinese Yuan (N/¥) interbank exchange rates, Nigeria consumer price index and Inflation as well as the US, UK and China consumer price indices and inflation rates spanning 2008:M1 to 2018:M12 were utilized. A recently modified fractional cointegration framework was employed, taking care of smooth structural breaks and nonlinearity, while the unit root tests employed the fractional alternatives. The results confirmed that the aPPP approach to exchange rate determination is unrealistic but revealed empirical support for the rPPP approach. Furthermore, the exchange rates computed with the rPPP approach show that the interbank Naira to US Dollar, UK Pounds and Chinese Yuan exchange rates were overvalued in most of the period of this study. The period of undervaluation observed in June 2016 and April 2017 coincided with the periods when CBN introduced the investors and exporters window. The study recommends the use of rPPP for gauging the level of exchange rate misalignment in Nigeria and suggests the need to diversify the export base to appreciate the exchange rate