THE IMPACT OF EXCHANGE RATE VARIATIONS ON AGGREGATE DEMAND IN NIGERA (1979 -2013)

ABSTRACT

The study is a critical Evaluation of the impact of Exchange rate variation on Aggregate Demand in Nigeria. These study made use of the ordinary least square OLS regression technique in analyzing the impact of Exchange Rate Variation On Aggregate Demand in Nigeria. There are also other variables that determine the impact of Exchange Rate Variations on Aggregate Demand in Nigeria: 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 Nigeria. These massive contributions of these variables may strongly depend on the circumstances in Nigerian economic environment. The starting point in reclaiming and reinventing project in Nigeria is to squarely admit that oil and the manner we have designed to utilize it have constituted a stumbling block in Nigerias progress. Accordingly, 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 Nigeria 22

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