Exchange Rates, Borrowing Costs and Optimizing Real Industrial Output in the Nigerian Economy

International Journal of Economics and Management Studies

© 2020 by SSRG - IJEMS Journal

Volume 7 Issue 2

Year of Publication : 2020

Authors : Obiajulu Onyedikachi Emma-Ebere

10.14445/23939125/IJEMS-V7I2P120

How to Cite?

Obiajulu Onyedikachi Emma-Ebere, "Exchange Rates, Borrowing Costs and Optimizing Real Industrial Output in the Nigerian Economy," SSRG International Journal of Economics and Management Studies, vol. 7,  no. 2, pp. 134-142, 2020. Crossref, https://doi.org/10.14445/23939125/IJEMS-V7I2P120

Abstract:

The importance of a consensus on how the relationship between the USD-NGN exchange rates and industrial output in Nigeria should be modeled cannot be over-emphasized. Empirical exercises which focus onhomogeneity testing and dynamic stabilityas primary considerations for loading variables in the Vector Autoregressive (VAR) space for modeling the relationship between exchange rates and real Industrial output in Nigeria are yet to be undertaken. This lacuna encourages the unhealthy over-emphasis on the application of exchange rate ceilings and floors (as opposed to managing borrowing costs) as measures to facilitate industrial output growth. The results of Vector Autoregression show that a differenced form VAR model is the most parsimonious and statistically viable model for capturing the dynamics of the relationship between exchange rates, borrowing costs, and real industrial output in Nigeria. Granger causality tests reveal short-run causality running from borrowing costs to real industrial output. It is recommended that monetary policymakers channel their efforts away from exchange rate management and focus on the management of lending rates as a strategy for optimizing industrial output in Nigeria.

Keywords:

Real Industrial Output, Lending Rates, Exchange Rates, Exogeneity, Differenced Form VAR, Dynamic Stability, Short Run Causality.

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