Policy lags and exchange rate dynamics in Nigeria: Any evidence?

Ayinde Taofeek Olusola


The study investigates policy lags and exchange rate dynamics in Nigeria. The downswing in the Nigerian economy attributed to recurring exchange rate fluctuations justifies this empirical investigation. The period of investigation spans 1970 – 2016 and the data were obtained from the various issues of the Central Bank of Nigeria (CBN) Statistical Bulletin and the Annual Statistics of the National Bureau of Statistics (NBS). Anchored on the monetary theory of exchange rate, the Markov-Switching Dynamic Regression (MSDR) was employed as the technique of analysis. The findings show that the supply of broad money in Nigeria is endogenous in nature as it serves as the adjustment variable for the stabilization of exchange rate in the economy. Also, the results obtained indicated that changes in the exchange rate affect the overall government income and that the Nigerian economy is still foreign dependent. An expansionary monetary policy takes three (3) years to stabilize exchange rate in Nigeria while an expansionary fiscal policy only takes one and a half (11/2) years. By implication, monetary policy is half-effective as the fiscal policy. Besides, there is evidence of fiscal dominance in Nigeria. The study found two exchange regimes of fixed- and managed-float. More so, fixed exchange rate regime in Nigeria was just not persistent but that the probability of transiting to a managed-float regime was relatively lower.


exchange rate dynamics, fiscal, monetary, Markov-switching regime, policy lags.

Full Text:



Asghar, N., and Hussain, Z. (2014). The Lags in Effect of Monetary Policy: A Case Study of Pakistan. Pakistan Economic and Social Review, 52(1), 1 – 14.

Arfiani, I. S. (2019). Analisis Empiris Hubungan antara Ekspor, Impor, Nilai Tukar dan Pertumbuhan Ekonomi di Indonesia. Jurnal Ekonomi Pembangunan, 17(2), 81-98. DOI:https://doi.org/10.29259/jep.v17i2.9485.

Batini, N., and Nelson, E. (2001). The Lag from Monetary Policy Actions to Inflation: Friedman Revisited. External MPC Unit Discussion Paper No. 6, Bank of England.

Bird, G., & Mandilaras, A. (2014). Transition in Exchange Rate Regimes in the Aftermath of the Global Economic Crisis. Applied Economic Letters, 22(7), 567 – 571.

CBN (2015). Annual Statistical Bulletin. Central Bank of Nigeria, Abuja.

CBN (2012). Annual Statistical Bulletin. Central Bank of Nigeria, Abuja.

CBN (2010). Annual Statistical Bulletin. Central Bank of Nigeria, Abuja.

Friedman, M. (1973). Money and Economic Development: The Horwitz Lectures of 1972. Praeyer Publishers Incorporation, New York.

Friedman, M. (1956). Structural Transmission Mechanisms in a Typical Economy. Journal of Economic Policy, 29, 5 – 19.

Goldfeld, S. M., & Quandt, R.E. (1973). A Markov Model for Switching Regression. Journal of Econometrics, 1, 3 – 16.

Gruen, D., Romalis, J., and Chandra, N. (1997). The Lags of Monetary Policy. Economic Group. Meetings of Central Bank Model Builders and Econometricians at the Bank of International Settlements.

Guidolin, M. (2011a). Markov-Switching in Portfolio Choice and Asset Pricing Models: A Survey. In Advances in Econometrics: 273 – Missing Data Methods: Time Series Methods & Applications ed. D.M. Drukker, 87 – 178, Bingley, Emerald, UK.

Guidolin, M. (2011b). Markov-Switching Models in Empirical Finance: In Advances in Econometrics: Vol 273 – Missing Data Methods: Time Series Methods & Applications ed. D.M. Drukker, 1 – 86, Bingley, Emerald, UK.

Markiewicz, A. (2006). Choice of Exchange Rate Regime in Transition Economies: An Empirical Analysis. Journal of Competitive Economics, 34 (3), 484 – 498.

Mishkin, F. S. and Serletis, A. (2016). Economics of money, banking and financial market–business School Edition. 4th ed. Canada: Pearson Education Publisher.

Osinubi, T.S. (2005). Lags in the Effect of Monetary Policy in Nigeria. Pakistan Economic and Social Review, 43(1), 39 – 57.

Rosenbaum, M.S. (1985). Lags in the Effect of Monetary Policy. Economic Review, Federal Reserve Bank of Atlanta.

Smith, A. (1776). An Inquiry into Nature and Causes of the the Wealth of Nations. Book V, Chapter 3, Article III: Of Public Debt.

Szapary, G; & Jakab, Z.M. (1998). Exchange Rate Policy in Transition Economies: The Case of Hungary. Journal of Comparative Economics, 26(4), 691 – 717.

Yoshino, N., Kaji, S. & Asonuma, T. (2014). Dynamic Transition of Exchange Rate Regime in China. China and the World Economy, 22(3), 36 – 55.

Yoshino, N., & Asonuma, T. (2017). Optimal Dynamic Path During the Transition of Exchange Rate Regime: Analysis of the People’s Republic of China, Malaysia and Singapore. Asian Development Bank Institute Working Paper Series, No. 765, Tokyo. Available at: http://www.adb.org/publications/optimal-dynamic-path-during-transition-exchange-rate- regime-analysis-prc

WDI (2016). World Development Indicators. World Bank Group, Washington DC, USA.

DOI: https://doi.org/10.29259/jep.v18i1.9688


  • There are currently no refbacks.

Jurnal Ekonomi Pembangunan
Jalan Raya Palembang-Prabumulih Km. 32
Jurusan Ekonomi Pembangunan, Fakultas Ekonomi Universitas Sriwijaya
Indralaya, Sumatera Selatan, Indonesia
Email: jep.unsri@gmail.com, Tel/Fax : (0711)580231

p-ISSN: 1829-5843, e-ISSN 2685-0788

Creative Commons License

Jurnal Ekonomi Pembangunan by http://ejournal.unsri.ac.id/index.php/jep 

is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.  

Jurnal Ekonomi Pembangunan is Indexed by:

Logo Google Scholar Unsri  Moraref One Search