Structural Relationships of Exchange Rates of Naira to Some Foreign Currencies

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Edited Conference Proceedings of the 1st International Conference of the Nigeria Statistical Society (NSS).


This study investigates the existence of causality among exchange rates of Naira to three of the major foreign currencies (Euro, Pound Sterling and US Dollar). The work is aimed at determining the patterns of causalities that exist among these three foreign currencies to Nigerian Naira using multivariate time series modelling techniques. The data employed for this study were on daily exchange rates of Naira to Euro, Pound Sterling and US Dollar over a period of thirteen years beginning from 1st January 2002 to 31st December, 2014. The rates were national datasets extracted from the published statistical bulletin of the Central Bank of Nigeria. The Vector Autoregressive (VAR) model which is useful for describing the dynamic behavior of economic and financial time series was fitted to the data. The potential causal relationships among the three exchange rates using the Granger Causality tests were examined. Results revealed that the future exchange rates of Naira to Euro can be predicted by the past values of Naira to Euro and Naira to US Dollar. Finally, the exchange rates of Naira to Pound Sterling was granger caused by Naira to Euro and Naira to US Dollar exchange rates, and the rate of exchange of Naira to US Dollar was granger caused by the Naira to Euro exchange rates. Results from this work would assist the government, policy makers and other interested stakeholders to be familiar with the inherent relationship among the notable currencies to the Naira for efficient business decisions.



Granger Causality, Co-integration, Stationary, VAR