IIARD International Institute of Academic Research and Development

IIARD INTERNATIONAL JOURNAL OF BANKING AND FINANCE RESEARCH (IJBFR )

E-ISSN 2695-1886
P-ISSN 2672-4979
VOL. 2 NO. 2 2016

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Effect of Currency Devaluation in an Era of Economic Downturn in Nigeria

Ofor Nkechi Theresa, Manukaji Ijeoma Juliana

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Abstract

The primary aim of the study is to estimate the long run relationship between economic growth (RGDP) and currency devaluation. This study investigated the effect of currency devaluation in an era of economic downturn in Nigeria. In order to generate the necessary data for this study, the Central Bank of Nigeria Statistical Bulletin and publications of the National Bureau of Statistics were used for the period of 2000 to 2014. The Johansen Co-integration method was used for this analysis because the study involves the use of multivariate estimations. The result from the multivariate co-integration test shows that there is at least one co-integrating vector in the relationship between economic growth and the independent variables. This implies that a long run relationship exists among these variables. Thus, we cannot reject the hypothesis of a significant short term relationship between economic growth and currency devaluation. The study shows that in the short run currency devaluation leads to increase in output and improves the balance of payments but in the long run the monetary consequence of the devaluation ensures that the increase in output and improvement in the balance of payment is neutralized by the rise in prices. Based on the above it is recommended that the Nigerian government should consider devaluation of currency as the last resort to the economic imbalance.

keywords:

effect, currency, devaluation, economic downturn

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