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Exchange Rate Pass-Through to Inflation in Nigeria
No full textConcerns about the magnitude and length of exchange rate pass-through to consumer prices have increased in many developing countries in view of its profound implications on price and exchange rate stability as well as the macroeconomic policy environment. This paper examines the exchange rate pass-through effect at the aggregate level into import and consumer prices in Nigeria for the period 1995Q1 – 2015Q1. Utilizing the Johansen approach to cointegration and a vector error correction methodology, the paper found the exchange rate pass-through into Nigeria’s CPI inflation to be incomplete. The long run pass-through elasticities were found to be 0.24 and 0.30 for the baseline and alternative models. The effect was discovered to be higher in import than in consumer prices, implying that the pass-through effect declines along the pricing chain. These findings were useful in the design and implementation of monetary and exchange rate policies by the Central Bank of Nigeria
Re-Introducing and Operationalizing Nigeria’s Flexible Exchange Rate Market
No full textThis is an address presented to relevant stakeholders and the general public unveiling of the framework for re-introduction of Managed Float Exchange Rate System on 15th June 2016. The address included the broad framework and guidelines of the Flexible Exchange Rate Inter-bank Market, which we alluded to at the end of Monetary Policy Committee (MPC) of 24th May 2016
Determining the Optimal Public Debt Threshold for Nigeria
No full textThis paper investigates the existence of threshold effects in the relationship between public debt and economic growth in Nigeria using quarterly data. Generally, we found empirical support for an inverted U-shape relationship between public debt types and economic growth. For total public debt as percentage of GDP, model results identified a threshold level of 73.70 per cent, while the estimated inflexion points for external and domestic debts were 49.4 and 30.9 per cent, respectively. The implication of this finding is that debt accumulation in excess of the estimated threshold levels could hurt economic growth. A retrospective examination of the country’s total and external debts profile indicated that the estimated threshold levels were exceeded prior to the debt forgiveness negotiated in 2005 and largely within limits afterwards. In addition, the study found empirical support for external debt accumulation opportunities, however, we caution that such additional debt incurrence be done in a manner that is consistent with the country’s growth objectives
A Three-State Markov Model for Predicting Movements of Asset Returns of a Nigerian Bank
No full textWe present in this paper an alternative approach to determining and predicting the fluctuations in the daily prices and stock returns of a first-generation bank in the Nigerian Stock Market (NSM). The approach uses a three-state Markov to estimate the expected duration of the asset returns in states classified as rising (positive) (), falling (negative) state () or stable (zero) state (). Related goodness-of-fit tests show that the Markov model fits the data adequately with an error rate of approximately 0.1. The maximum expected lengths of successively being in either positive or negative regime is 4 days, while that of zero regime is 12 days, within any trading month of the study period (August 2005-Jnauary 2012). For the 2005-2009 period which encompasses post-2004 banking reform and the 2007-2009 global financial crisis, runs of zero returns dominate those of positive and negative returns about 59% of the time, indicating a lack of pronounced asymmetric effects in the bank’s returns. The findings further reveal a minimum trading cycle of 7 days in February and a maximum cycle of 18 days in the months of May and October. The paper provides useful insights not only on the durations of returns in the three states, but on the Markovian transition probabilities among pairs of states which have implications for how investors could trade and invest in the bank stock or in a portfolio with bank stocks, if the same approach is used to characterise the returns dynamics of other banks in the NSM
Overview of non-oil sector in Nigeria.
No full textThis paper is to enhance the understanding of the non-oil sector in Nigeria, The underlying need is the emphasis on why the sector should be embraced as the new economic bride, not only by the government, but by oil and sundry, to fast-track economic recovery and enhance sustainable growth
Non-Oil Revenue Buoyancy and Elasticity: Implications for Revenue Generation in Nigeria
No full textThe paper employs annual time series data on real government tax revenue components from 1981-2014 to endogenously determine the level of non-oil revenue buoyancy and elasticity and its implication for revenue generation in Nigeria. A partitioning approach to determining tax buoyancy and elasticity is employed to address these objectives. The study found that with the exception of the Company Income Tax, an inelastic tax structure exists in Nigeria for the period under review. The proxy bases had similar results in terms of their responsiveness to the tax system. There were also evidences that the discretionary measures taken during the study period were not effective as shown in the low discrepancies between the buoyancy and elasticity measures. Among others, we recommend that government should as a matter of urgency strengthen tax administration and curtail leakages associated with tax avoidance and evasion. In addition, there is need for stronger collaboration among the relevant fiscal authorities and to streamline the tax structure and rates, reduce tax waivers and bureaucratic bottlenecks in the tax administration
Entrepreneurial orientation: a global asset for national development.
No full textThis paper appraised the outcome of Entrepreneurial Orientation on national development . Entrepreneurial orientation (EO) deals with the level in which nations or firms strategically educate its citizens or members to promote entrepreneurial culture to gain economic benefits. EO entails dimensions of innovation, proactiveness and risk taking. It is held that entrepreneurial orientation is required for a successful national development. innovativeness ls the predisposition to engage in creativity and experimentation through the introduction of new products/ services as well as technological leadership and advancement. To drive home the aims of this investigation, relevant data were sourced from management journals, bulletin and the internet. The paper considers all the process of ministering the entrepreneurial personality, right from childhood to the time of retirement from active entrepreneurial practice, if ever possible. It also specifies development as a construct used to explain economic expansion
Real Exchange Rate Misalignment and Economic Growth in Nigeria (1960-2011)
No full textThis paper examines the impact of real effective exchange rate misalignment on economic growth in Nigeria using an annual data spanning 1960 to 2011. The augmented growth model was estimated using purchasing power parity (PPP) and generalized method of moment (GMM) approaches. Through series of iterative processes, it was observed that it will take four years for the exchange rate to revert back to equilibrium. The result from the PPP approach shows that the period of flexible exchange rate regime is characterized by a relatively lower real exchange rate misalignment over time compared with the fixed exchange rate regime. The GMM estimate reveals that real exchange rate misalignment has negative but significant impact on economic growth over the period under consideration. In view of the findings, the study recommends appropriate exchange rate to minimize the problem of exchange rate misalignment and to ensure sustainable economic growth over time
Testing the Fisher Hypothesis in the Presence of Structural Breaks and Adaptive Inflationary Expectations: Evidence from Nigeria
No full textThis paper tested for the validity of the Fisher hypothesis in Nigeria during the period 1970 – 2014. The Gregory and Hansen Co-integration test confirmed the existence of a long-run relationship between nominal interest rates and inflation, albeit with a structural break in October 2005. In addition, the obtained Fisher coefficient in the cointegrating relation was 0.08, implying a weak form of Fisher effect in the long-run. On the basis of these findings, we upheld a weak Fisher effect in the long-run and non-existence of Fisher effect in the short-run. This implied that short term nominal interest rate is a good characterization of monetary policy stance. Also, the obtained partial Fisher effect indicated that changes in monetary policy are capable of altering the long term real interest rate and influencing economic growth through the interest rate channel. We therefore recommend a more forward looking monetary policy as a way of anchoring inflationary expectations and ensuring low and stable prices in Nigeria
Modelling Nigerian Banks’ Share Prices Using Smooth Transition GARCH Models
No full textThis paper examined the application of nonlinear Smooth Transition-Generalized Autoregressive Conditional Heteroscedasticity (ST-GARCH) model of Hagerud on prices of banks’ shares in Nigeria. The methodology is informed by the failure of the conventional GARCH model to capture the asymmetric properties of the banks’ daily share prices. The asymmetry and non-linearity in the model dynamics make it useful for generating nonlinear conditional variance series. From the empirical analysis, we obtained the conditional volatility of each bank’s share price return. The highest volatility persistence was observed in Bank 6, while Bank 12 had the least volatility. Evidently, about 25% of the investigated banks exhibited linear volatility behaviour, while the remaining banks showed nonlinear volatility specifications. Given the level of risk associated with investment in stocks, investors and financial analysts could consider volatility modelling of bank share prices with variants of the ST-GARCH models. The impact of news is an important feature that relevant agencies could study so as to be guided while addressing underlying issues in the banking system