ABSTRACT
The study is a critical
Evaluation of the impact of Exchange rate variation on Aggregate Demand in
study made use of the ordinary least square (OLS) regression technique in
analyzing the impact of Exchange Rate Variation On Aggregate Demand in
are also other variables that determine the impact of Exchange Rate Variations
on Aggregate Demand in
1979 -2008. Findings from the paper show that
all the variables included in the models contributes in explaining the
role of exchange rate on aggregate demand in
contributions of these variables may strongly depend on the circumstances in
Nigerian economic environment. The starting point in reclaiming and
re-inventing project in
is to squarely admit that oil and the manner we have designed to utilize it
have constituted a stumbling block in
there is need to pay specific attention to the contest of action and the
production relations in the various sections of the economy.
TABLE OF CONTENTS
Title Page = = = = = = = = = i
Approval Page = = = = = = = = ii
Dedication = = = = = = = = iii
Acknowledgement = = = = = = = iv
Abstract = = = = = = = = = v
Table of Content = = = = = = = vi
CHAPTER
ONE
Introduction = = = = = = = = 1
1.1 Background of the Study = = = = = 1
1.2 Statement of Problems = = = = = = 5
1.3 Objective of the Study = = = = = = 6
1.4 Statements of Hypothesis = = = = = 7
1.5 Scope and Limitations of the Study = = = 7
1.6 Significance of the Study = = = = = 8
CHAPTER
TWO: LITERATURE REVIEW
2.1 Review of Theoretical Literature = = = = 10
2.2 Exchange ate Determination Models = = = 11
2.2.1 Flexible Price Monetary Model = = = = 12
2.2.2 Sticky Price Monetary Model = = = = 13
2.2.3 Equilibrium Model and Liquidity Model = = 14
2.2.4 Portfolio Balance Model = = = = = 15
2.3 An Overview of Exchange Rate Regimes = = 16
2.3.1 The Gold Standard Regime = = = = = 17
2.3.2 Flexible Exchange Rate Regime = = = = 18
2.3.3 The Crawling Peg Regime = = = = = 19
2.3.4 The Managed Float Regime = = = = = 20
2.3.5 The European Monetary System = = = = 21
2.4 An Evaluation of Exchange Rate Regimes in
2.4.1 The Pre – Sap ara = = = = = = 23
2.4.2 The Post –Sapara = = = = = = 24
2.5 Exchange Rate Determinants = = = = 26
2.5.1 Interest Rate = = = = = = = 28
2.5.2 Transaction Motive = = = = = = 29
2.5.3 Volume of International Transaction = = = 29
2.5.4 Political Instability = = = = = = 30
2.5.5 Policy Actions = = = = = = = 31
2.6 Review of Empirical Literature = = = = 32
2.6.1 Empirical Literature on the Study using
Foreign
Data set = = = = = = = = = = = = = = =
= = = = = = == = 32
2.6.2
Empirical Literature on the Study Using
Nigerian Data set = = = = = = == = = =
= = = = = = = = 34
CHAPTER THREE: METHODOLOGY
3.1
An Overview of the Model = = = = = = = = =
= = = = = = 49
3.2
Model Specification = = = = = = = = = == =
= = = = = = = 50
3.3
Unit Root Test = = = = = = = = = = = = = =
= = = = = = = = 52
3.4
Co Integration and Error Correction = = = =
= = = = = = = 53
3.5.1 Economic Criteria = = = = = = = = = = = = = =
= = = = = = 54
3.5.2 Statistical Criteria = = = = = = = = = = =
= = = = = = = = = 54
3.5.3 Economics = = = = = = = = = = = = = = = = = =
= = = = = = 54
CHAPTER FOUR: PRESENTATION AND ANALYSIS OF RESULT
4.1
ADF Test for Stationary = = = == = = = = = = = = = ==
= 58
4.2
CO Integration Test = = = = = = = = = = = = = = = = = = = 60
4.3
Result from Modeling log of GDP by OLS = = = = = = = 62
4.4
Economic Interpretation = = = = = = = = = = = = = = = = =63
4.5
Statistical Criteria = = = = = =
= = = = = = = = = = = = = = 69
4.5.1
T. Value
= = = = = = = = = = = = = = = = =
= = = = = = = = 70
4.5.2
F-
Test = = = = = = = = = = = = = = = = = = = = = = = = = = 70
4.6
Evaluation based on econometric Criteria =
= = = = = = = 71
4.6.2
Test for Hetrosedasticity = = = = = = =
= = = = = = = = = =71
4.6.3
Test for Multicollinearity = = = = = = = = = = = = = = = = =73
4.6.4 Normality Test = = = = = = = = = = = = = = = = = == = = = 74
4.6.5 Test for Adequacy of the Model = = = = = = =
= = = = = = 75
4.7
Evaluation of the Hypothesis = = = = = = = = = = = = = = = =76
CHAPTER FIVE
5.1
Summary = = = = = = = = = = = = = = = = = = = = = = = = =
78
5.2
Conclusion = = = = = = = = = = = = = = =
= = = = = = = = = = 79
5.3
Policy Implications = = = = = = = = = = = =
= = = = = = = = = 81
Bibliography
= = = = = = = = = = = = = = = = = = = =
= = = = = = 85
CHAPTER ONE
INTROUDCTION
1.1
BACKGROUND
OF THE STUDY
All
over the world, policy makers have always been on the move to ensure that there
is sustainable growth rate in the economies of the world. As a result, a lot of economic factors have
been brought to the fore to examine and investigate how they could be relevant
in the achievement of their economic objectives.
In
several government regimes have experimented on many economic factors
(macroeconomic aggregates) to determine how economic growth could both be
attained and sustained. Prior to the introduction of the structural adjustment
programme (SAP) of 1986, that had exchange rate devaluation as one of its policy measures, the economy of
Nigeria ‘headed for the rocks’ and was highly distressed. This led to a decline
in the country’s external reserves at a disturbing rate. The country’s debt
stool was accumulated to an unfavorable level among others. In spite of this
the naira exchange rate was overvalued leading to dexterous effect on the
economy. It was opinioned that exchange
rate policy embarked upon by the
1986,was to eliminate the observed distortions in the economy and bring about a
sustainable growth in the economy.
Since exchange influences the interaction of
household, business firms, private financial institutions and the central bank,
it implies that it could also affect aggregate demand in
Knowing fully well that exchange rate is a real phenomenon; variations in
relative prices affect both economic performance and aggregate demand. Hence,
exchange rate is a relative price between domestic currency. For instance, if
the exchange rate between British Pounds sterling and Nigeria Naira is N250 per
Pound, it follows that one pound exchange for N250 in the world foreign
(currency) exchange market.
Exchange
rates are of two broad categories. They include:
1. The fixed exchange rate and
2. The flexible exchange rate
The fixed exchange rates are pegged
rates within narrow range of values by the central bank on trade of currencies
while the flexible exchange also called FLOATING
exchange rate is the rate that is determined by the forces of demand and
supply. Government has little direct
control on the foreign exchange market that is flexible in nature.
Variation of exchange rates over the
years are known to have ripple effects on some other macroeconomic variables
like aggregate demand. This fact
underscores the pertinence of exchange rate to the economic well being of
countries that open their doors to international trade (Kombe, 2004). Due to
the impact exchange rate regimes have on economies of the world, economists
consider it vital to verify how their countries exchange rate are determined
since different regimes of exchange rate show different economic effects
(Kujis, 1998).
Exchange rate determination varies
from country to country. Part exchange rate regimes in
been directed to control the use of foreign exchange at official determined
rates. However, current policy options have shown an interest in market-
determined exchange rate most current records show that the CBN has adapted an
exchange rate regime that is neither pegged nor floating but a combination of
both regimes called the MANAGED FLOAT exchange rate. This research work intends
to look into the determinants of exchange rate in
variations exert on aggregate demand in
1.2
STATEMENT
OF PROBLEM
Economic
and political analysts have reached a consensus on what a good exchange rate is
as well as how it could both be operated and sustained. In most economic papers
and literature, the major issues have been the need for competitive exchange
rate stability and structural adjustments in the promotion of this
competitiveness. However, since exchange rate reveals competitiveness of
exports from domestic economies to the outside world, the economic implication
of its variations need to be ascertained so that good exchange rate policies
that will be realistic in consonance with aggregate demand could be formulated,
adopted and operated.
Therefore,
this study aims at providing answers to the questions stated below in order to
ensure that viability reigns in the market.
1)
Are exchange rate and aggregate demand variable stationary?
2)
Does exchange rate variations have affect any impact on aggregate demand?
3)
To what extent does exchange rate affect aggregate demand in
1.3
OBJECTIVES
OF THE STUDY
The
specific objective of this economic study are:
1.
To ascertain the impact of exchange rate
variations on aggregate demand.
2.
To estimate if there exists any casual
relationship between exchange rate and aggregate demand.
1.4
STATEMENT
OF HYPOTHESIS
The
following null hypothesis are to be stated for the statistical significance and
non – significance of data.
Hi: Exchange
rate instability has no impact on aggregate demand in
H2: There is no casual relationship between exchange rate and
aggregate demand in
1.5 SCOPE
AND LIMITATIONS OF THE STUDY
The length of period within which this
study covered is thirty years. This
falls between the periods of 1976 and 2006.
This essence of this is to enable the observation for the research work
compensate for degree of freedom that could be cost.
1.6 SIGNIFICANCE
OF THE STUDY
Research work of this kind is usually
treated directly with the variables lifted from their sources. However, in this study, the directives of
Philips (1986), which states that they are statutory, will be adopted to be
assured that the result from this work is reliable for other policy works.
Thus, the findings of this study will
be of great importance to a lot of people.
Firstly, researchers carrying out research work on the influence of
exchange rate in
would find this research work helpful. Secondly, policy makers who wish to
formulate policies on the effects of exchange rate instability would find this
research work handy. Thirdly, business firms and investors as well as exporters
who need to know when it is convenient to operate in business and when it is
not, would find this research work a present- help in their periods of economic
decision- making. Again, the central bank of Nigeria, the monetary authorities
(financial ministries
Social Plugin