A VAR Approach to Exchange Rate and Economic Growth in Nigeria
- 1 Dept. of Mathematics/Statistics, Caritas University, Amorji-Nike Enugu, Nigeria
- 2 Dept. of Mathematics, Chukwuemeka Odumegwu Ojukwu University, Uli, Nigeria
- 3 Dept. of Mathematics, Michael Okpara University of Agriculture, Umudike, Nigeria
Abstract
Exchange rate is very pivotal in its role in the economy of any nation especially as a result of globalization. This paper seeks to model the Nigerian economy proxied by the log of Gross Domestic Product (LGDP) and its relationship with other variables in the economy. The variables used are NGN/USD exchange rate (NAIRA), log of oil revenue (LOILREV), log of government expenditure. We estimated the model using the Vector Autoregressive (VAR) model. We tested the presence or otherwise of causality among the variables using the method of Granger. The result reveals that the optimal lag for the model was 1. The exchange rate was found to Granger cause the economy (LGDP), LOILREV (Oil Revenue) and LGEXP (Government expenditure). We also discovered that the dynamics of NAIRA was not fully captured by the variables used. We also pointed out the shock persistence of NAIRA in time.
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