IMPACT OF CENTRAL BANK COMMUNICATIONS ON EXCHANGE RATE DYNAMICS IN NIGERIA (2007-2011)
IMPACT OF CENTRAL BANK COMMUNICATIONS ON EXCHANGE RATE DYNAMICS IN NIGERIA (2007-2011)
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Date
2012-11
Authors
NA’ALLAH, NICODEMUS
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Abstract
Central Bank Communication has come to play an increasingly important role as a
policy tool for monetary authorities over the past decade. This is in recognition of the
powerful influence the central bank communication has on economic agents’ expectations,
hence their economic decision-making. This thesis analyzes the impact of central bank
communication signals on daily (five days in a week) changes in the Naira per US dollar
exchange rate for the period 2007-2011. Theoretically, participants (especially speculators)
in the foreign exchange market actively look up to the Central Bank for information to help
them form expectations on the future directions of the exchange rate changes.
Communications from the Central Bank therefore convey signals that may raise daily
demand/supply of foreign exchange, hence affect the daily exchange rate. To empirically
determine whether communication signals affect exchange rate, an EGARCH model was
estimated using daily data from 2007 to 2011.The empirical results indicate that
communication (oral interventions) has exhibited a significant and contemporaneous effect
on daily exchange rates in Nigeria. Moreover, communication is found to reduce exchange
rate volatility and uncertainty whereas actual interventions which are costly tend to raise
volatility. We can recommend this by suggesting that communication (oral intervention)
potentially constitute an effective and largely autonomous policy tool for Nigeria policy
makers.
Description
IMPACT OF CENTRAL BANK COMMUNICATIONS ON EXCHANGE RATE
DYNAMICS IN NIGERIA (2007-2011)
BY
NA’ALLAH NICODEMUS
(M.Sc/Soc-Sci/5379/2009-2010)
A THESIS SUBMITTED TO THE SCHOOL OF POST GRADUATE
STUDIES, AHMADU BELLO UNIVERSITY, ZARIA
IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE
AWARD OF MASTERS DEGREE IN ECONOMICS.
DEPARTMENT OF ECONOMICS, FACULTY OF SOCIAL SCIENCES
AHMADU BELLO UNIVERSITY, ZARIA, NIGERIA
NOVEMBER, 2012
Keywords
IMPACT, CENTRAL BANK, COMMUNICATIONS, EXCHANGE, RATE, DYNAMICS, NIGERIA, (2007-2011)