Inflation Anchoring, Exchange Rate and Sectoral Economic Growth in Nigeria
Keywords:
Inflation anchoring; Exchange rate; Sectoral economic growth; CointegrationAbstract
The Nigerian economy has been faced with high inflation rate, accompanied with a devastated exchange rate and a slow growth rate of the economy. The authors, in this paper, have examined inflation anchoring, exchange rate and sectoral economic growth nexuses in Nigeria. A multivariate cointegration approach was adopted. The result shows that inflation anchoring with a rising exchange rate would have contractionary effects on economic growth, agricultural output, industrial output and trade output in Nigeria. However, such policy would not have significant impacts on the building and construction sectors as well as service sector of the economy. The inflation threshold for Nigeria has been found to be 9 percent. Thus, inflation anchoring policy may be meaningful in Nigeria if exchange rate is well managed and the sub sectors of the economy are developed. A piecemeal disbursement of loan facilities for accountability, at low interest rate to the agricultural, industrial and trade sectors remains promising in promoting the growth of the sectors, while a low inflation rate is pursued and secured. Studies in future on the subject may essentially examine how inflation anchoring would affect economic growth in Nigeria without interacting inflation anchoring with exchange rate in their models.
References
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Ncube, M. & Ndou, E. (2011). Inflation targeting, exchange rate shocks and output: Evidence from South Africa. African Development Bank Group Working Paper No. 134.
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Stockman, A. C. (1981). Anticipated inflation and the capital stock in a cash-in-advance economy. Journal of Monetary Economics, Vol. 8, pp. 387-393.
Strohsal, T. & Winkelmann, L. (2015). Assessing the anchoring of inflation expectations. Journal of International Money and Finance, Vol. 50(C), pp. 33-48.
Swan, T. W. (1956). Economic growth and capital accumulation. Economic Record, Vol. 32, no. 334-361.
Tobin, J. (1965). Money and economics, Econometrica, Vol. 33, no. 4, pp. 671-684.
Yaqub, J. O. (2010). Exchange rate changes and output performance in Nigeria: A sectoral analysis. Pakistan Journal of Social Sciences, Vol. 7, no. 5, pp. 380-387.
Ball, L. & Mazumder, S. (2011). Inflation dynamics and the great recession. Brookings Papers on Economic Activity, pp. 337-406.
Barro, R. J. (1995). Inflation and economic growth. National Bureau of Economic Research (NBER), Working Paper no. 5326.
Bawa, S. & Abdullahi, I. S. (2011). Threshold effect of inflation on economic growth in Nigeria. CBN Journal of Applied Statistics, Vol. 3, no. 1, pp. 43-63.
Cecchetti, Ss. & Hakkio, C. (2009). Inflation targeting and private sector forecasts. National
Bureau of Economic Research Working Paper no w15424.
Choi, S., Fluceri, D. & Loungani, P. (2018). Inflation anchoring and growth: Evidence from
sectoral data. IMF Working Paper WP/18/36.
Cruijsen, C. & Demertzis, M. (2011). How anchored are inflation expectations in EMU Countries? Economic Modelling, Vol. 1-2, pp. 281-298.
Demertzis, M. & Viegi, N. (2009). Inflation targeting: A framework for communication. The B. E. Journal of Macroeconomics, Vol. 9, no. 1, pp. 1-30.
De Pooter, M., Robitaille, P., Walker, I., & Zdinak, M. (2014). Are inflation expectations well anchored in Brazil, Chile and Mexico? International Journal of Central Banking, Vol. 10, no. 2, pp. 337-400.
Dickey, D. A. & Fuller, W. A. (1981). Likelihood ratio statistics for autoregressive time series with a unit root. Econometrica, Vol. 49, pp. 1057-1072.
Dornbush, R., Fischer, S. & Kearney, C. (1996). Macroeconomics. Sydney, The Mc-Graw Hill Companies, Inc.
Engle, R.F. & Granger, C. W. J. (1987). Co-integration and error Correction: Representation, estimation, and testing. Econometrica, Vol. 55, pp. 251-276.
Falana, O. E. (2019). Exchange rate fluctuation and real sector performance in Nigeria: A disaggregated analysis. European Scientific Journal, Vol. 15, no. 25, pp. 358-386.
Fischer, S. (1993). The role of macroeconomic factors in growth. National Bureau of Economic Research (NBER), Working Paper no. 4565.
Flemming, M. (1962). Domestic financial policies under fixed and under floating exchange rates. International Monetary Fund Staff Papers, Vol. 9, pp. 369-379.
Gondo, R. & Yetman, J. (2018). Anchoring of inflation expectations in Latin America, Serie de Documentos de Trabajo. Working Paper Series.
Hattori, M. & Yetman, J. (2017). The evolution of inflation expectations in Japan. Journal of the Japanese and International Economies, Vol. 46, pp. 53-68.
Hansen, A. H. (1953). A Guide to Keynes. New York, Mc-Graw Hill.
Hicks, J. R. (1937). Mr. Keynes and the ‘Classics’: A suggested interpretation. Econometrics, Vol. 5, pp. 147-159.
Johansen, S. (1991). Estimation and hypothesis testing of cointegration vectors in Gaussian vector vector autoregressive models. Econometrica, Vol. 59, pp. 1551-1580.
Khan, M. S. & Senhadji, M. A. (2001). Threshold effects in the relationship between inflation and growth. IMF Staff Papers, Vol. 48, no. 1.
Kozicki, S. & Tinsley, P. A. (2012). Effective use of survey information in estimating the evolution of expected inflation. Journal of Money, Credit and Banking, Vol. 44, no. 1, pp. 145-169.
Lerner, A. (1944). The Economics of Control. New York, Macmillan.
Maddala, G. & Kim, I. (1998). Unit Roots, Cointegration and Structural Change. Cambridge, Cambridge University Press.
Marshall, A. (1923). Money, Credit and Commerce. London, Macmillan and Co.
Mehrotra, A. & Yetman, J. (2017). Decaying expectations: What inflation forecasts tell us about the anchoring of inflation expectations. International Journal of Central Banking, forthcoming.
Mordi, C. N., Adebiyi, M.A., Adenuga, A. O., Adebayo, O. M., Abeng, M. O., Akpan, I. N., ……… Evbuomwan, O. O. (2013). Modelling the Real Sector of the Nigerian economy. CBN, Research Department. pp. 1-59.
Mundell, R. (1963). Inflation and interest rate. Journal of Political Economy, Vol. 71, no.3, pp. 280-283.
Muth, J. F. (1961). Rational expectations and the theory of price movements. Econometrica, Vol. 29, no. 3, pp. 315-335.
Ncube, M. & Ndou, E. (2011). Inflation targeting, exchange rate shocks and output: Evidence from South Africa. African Development Bank Group Working Paper No. 134.
Obstfeld, M. & Rogoff, K. (1995). Exchange rate dynamics redux. Journal of Political Economy, Vol. 103, pp. 624-660.
Solow, R. (1956). A contribution to the theory of economic growth. Quarterly Journal of Economics, Vol. 70, pp. 65-94.
Speller, W. R. (2006). Real Exchange Rate in the Industrialized Commodity Currency Economies: An Error-Correction Framework. Unpublished Master’s Thesis, Stockholm School of Economics, Sweden.
Stockman, A. C. (1981). Anticipated inflation and the capital stock in a cash-in-advance economy. Journal of Monetary Economics, Vol. 8, pp. 387-393.
Strohsal, T. & Winkelmann, L. (2015). Assessing the anchoring of inflation expectations. Journal of International Money and Finance, Vol. 50(C), pp. 33-48.
Swan, T. W. (1956). Economic growth and capital accumulation. Economic Record, Vol. 32, no. 334-361.
Tobin, J. (1965). Money and economics, Econometrica, Vol. 33, no. 4, pp. 671-684.
Yaqub, J. O. (2010). Exchange rate changes and output performance in Nigeria: A sectoral analysis. Pakistan Journal of Social Sciences, Vol. 7, no. 5, pp. 380-387.
Published
2020-12-07
How to Cite
Oke, D. M., & Onyokwonu, A. (2020). Inflation Anchoring, Exchange Rate and Sectoral Economic Growth in Nigeria: Array. Acta Universitatis Danubius. Œconomica, 17(1). Retrieved from https://dj.univ-danubius.ro/index.php/AUDOE/article/view/421
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Financial Economics
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