DYNAMIC EFFECTS OF REMITTANCES ON EXTERNAL RESERVES IN NIGERIA: THE ROLE OF INFLATION AND STRUCTURAL BREAKS
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Date
2018
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FEDERAL UNIVERSITY OF AGRICULTURE ABEOKUTA
Abstract
This study provides additional information about the drivers of external reserves in Nigeria. The result using the autoregressive distributed lag (ARDL) model estimation approach for the period 1980–2015 shows that remittances, among other macroeconomic variables, increased external reserves in the short run but weakened them in the long run. Remittances deplete external reserves through their effect on the inflation rate and the non-sterilized intervention of the Central Bank. Furthermore, the regime shift to a relatively floating exchange rate causes remittances to increase reserves. From the foregoing, it is important for the authorities to continue operating at a relatively flexible exchange rate and curtail excessive spending on remittances.
Description
This study reveals that remittances increase Nigeria's external reserves in the short run but deplete them in the long run, highlighting the importance of a flexible exchange rate and controlled spending of remittances to manage external reserves effectively.
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Citation
Olubiyi, E. A., Raheem, A., and Ademokoya, A. A. (2018): Dynamic effects of remittances on external reserves in Nigeria: The role of inflation and structural breaks. Journal of Humanities, Social Sciences and Creative Arts. 13(1): 119-141, Published by the Federal University of Agriculture, Abeokuta. Available online at https://doi.org/10.51406/jhssca.v13i1.1934