|
Abstract:
The study uses Pesaran et al. (2011) Autoregressive Distributed Lag (ARDL) model to test for the long run co-integration relationship among the variables. It examined the relationship that exists among exchange rate, net capital inflows, inflation, growth rate of official foreign exchange reserves and other variables of interest. It investigates the nature of long-run relationship among the economic growth, exchange rate and other variables of considered using Bounds testing of co-integration approach and autoregressive distributed lag (ARDL) models. The stability test and the residual diagnostic test were conducted to make sure that the assumptions of the classical linear regression model were fulfilled. The tests results showed no incident of instability in the variables used, as the residual variance remained generally stable within a 5 percent critical band. The ARDL Bounds Test showed existence of co integration relationship among the variables with F-statistics of 7.544 greater than I(0) and I(1) bound of 2.06 and 3.24 at 5 percent significant level, respectively. The result also shows that the nominal exchange rate was relatively stable between 2010 and third quarter of 2014 when it trended upwards as a result of devaluation. It stabilised however in the first quarter of 2015 till June 2016 when it spiralled again as a result of the adoption of the current exchange rate regime. The study however recommended that a more forward-looking strategy in the medium to long-term has to be designed to propel long-term domestic growth and reduce over-dependence on imports.
|
