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Clark, Tamirisa, Wei, Sadikov; & Zeng (2004). Exchange rate volatility and trade flows: Some new evidence. IMF Working paper.

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Article

Exchange Rate Volatility and Balance of Payments Problem in Nigeria, 1980-2016

1Department of Economics, Faculty of Social Sciences, Niger Delta University, Amassoma, Nigeria


Journal of Finance and Economics. 2018, Vol. 6 No. 2, 60-66
DOI: 10.12691/jfe-6-2-4
Copyright © 2018 Science and Education Publishing

Cite this paper:
Akatugba D. Oghenebrume. Exchange Rate Volatility and Balance of Payments Problem in Nigeria, 1980-2016. Journal of Finance and Economics. 2018; 6(2):60-66. doi: 10.12691/jfe-6-2-4.

Correspondence to: Akatugba  D. Oghenebrume, Department of Economics, Faculty of Social Sciences, Niger Delta University, Amassoma, Nigeria. Email: aka_brume@yahoo.com

Abstract

There is a growing agreement in the literature that prolonged and substantial exchange rate volatility can create severe macroeconomic disequilibria and the correction of external balance will require both exchange rate devaluation and demand management policies. The main intuition behind this is that an increase in exchange rate volatility leads to uncertainty which might have a negative impact on trade flows. Consequent upon the above, this study focused on the effect of exchange rate volatility on balance of payments in Nigeria, 1980 to 2016. Exchange rate volatility was measured using the GARCH approach. The empirical results confirmed that exchange rate is positively related to balance of payments; while real gross domestic, inflation rate and volatility of exchange rate are negatively related to balance of payments. Therefore government should not underplay exchange rate volatility in Nigeria. In addition, government should encourage export promotion strategies in order to maintain a surplus balance of trade which will help make the domestic currency strong and also prevent further depreciation of the Nigeria naira in the future.

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