INTERNATIONAL JOURNAL OF ACCOUNTING, FINANCE AND MANAGEMENT (IJAFM)
GLOBAL FINANCIAL SHOCKS, CAPITAL FLOWS, AND EXCHANGE RATE FLUCTUATIONS: EVIDENCE FROM NIGERIA
E-ISSN: 5669-4522
P-ISSN: 2567-3562
DOI: https://iigdpublishers.com/article/1653
This study examined the relationship between global financial shocks, capital flows and exchange-rate fluctuations in Nigeria. Specifically, it investigated how external reserve growth, economic growth, inflation, institutional quality, oil prices, net portfolio inflows, Treasury bill rates and the US Federal Funds Rate influence Nigeria’s real effective exchange rate (REER). The study employed the Autoregressive Distributed Lag (ARDL) bounds-testing approach to examine both the short-run and long-run dynamics among the variables. The results established the existence of a long-run equilibrium relationship among the variables. The findings further revealed that the US Federal Funds Rate exerted a significant negative effect on REER in both the short and long run, indicating that tightening of US monetary policy generates depreciation pressures in Nigeria. External reserve growth had significant but opposing contemporaneous and lagged short-run effects, while oil prices exerted significant negative short-run effects. Inflation and net portfolio inflows also demonstrated significant short-run effects, although most variables were statistically insignificant in the long run. The error-correction coefficient was negative and significant at - 0.380565, indicating that approximately 38.1% of short-run disequilibrium is corrected within one period. The study concludes that Nigeria’s exchange-rate dynamics are significantly influenced by global financial conditions, particularly international monetary policy, while capital flows and commodity-price movements constitute important short-run transmission channels. The study recommends proactive external-sector management, adequate reserve accumulation, measures to moderate volatile capital flows, economic diversification, improved monetary-fiscal policy coordination and stronger institutional and macroprudential frameworks to enhance Nigeria’s resilience to global financial shocks.
Olurin Enitan Olurotimi PhD
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