AN ANALYSIS OF THE RELATIONSHIP BETWEEN REAL EXCHANGE RATE AND DOMESTIC CONSUMPTION IN NIGERIA (1981-2016)
AN ANALYSIS OF THE RELATIONSHIP BETWEEN REAL EXCHANGE RATE AND DOMESTIC CONSUMPTION IN NIGERIA (1981-2016)
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Date
2021-03
Authors
BABANGIDA, Jamilu Said
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Abstract
This dissertation analyses the real exchange rate-domestic consumption relationship in Nigeria
using the Smooth Transition Autoregressive (STAR) model from 1981 to 2016. Findings shows
that domestic consumption determines the regime shift in real exchange rate suggesting a
nonlinear linkage of real exchange rate and domestic consumption with clearly distinct regimes.
Exchange rate is shown to have significant linear effect from previous exchange rate. On the
other hand, current foreign consumption is positive but has no significant impact on the
exchange rate in the linear part of the model. In the nonlinear part of the model, we found
evidence of a significant negative relationship between real exchange rate and domestic
consumption, thus supporting the proposition by standard International Real Business Cycle
(IRBC) Model. In the face of the wide disparity in literature trying to establish the prediction of
IRBC model, we found evidence of bi-directional nonlinear granger causality between real
exchange rate and domestic consumption. The study concludes that the relationship between
real exchange rate and domestic consumption is indeed nonlinear and that fiscal and monetary
authorities should develop policies that will help strengthen domestic production to further
reduce import component in domestic consumption.
Description
A DISSERTATION SUBMITTED TO THE SCHOOL OF POSTGRADUATE
STUDIES, AHMADU BELLO UNIVERSITY, ZARIA IN PARTIAL FULFILLMENT
OF THE REQUIREMENTS FOR THE AWARD OF MASTER’S DEGREE IN
ECONOMICS
DEPARTMENT OF ECONOMICS,
FACULTY OF SOCIAL SCIENCES
AHMADU BELLO UNIVERSITY, ZARIA
NIGERIA
Keywords
ANALYSIS,, RELATIONSHIP,, REAL EXCHANGE RATE,, DOMESTIC CONSUMPTION,, NIGERIA, (1981-2016).