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Authors:
ADEJAYAN, Adeola Oluwakemi, OKE, Michael Ojo and OLUWALEYE, Taiwo Olarinre, Nigeria
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Abstract:
The main
objective of this study is to examine the causality between exchange rate and
other selected macroeconomic variables in Nigeria and Turkey between 1980 and
2017. This study employs the Toda-Yamamoto Var Granger causality test on
Exchange rate, GDP, Inflation. Export, Import and Foreign Direct Investment.
For Nigeria, the results show that only IMP and EXP Granger cause REER, with no
feedback causal effect, implying that there is a unidirectional causality
running from imports and exports to exchange rate. Also, REER and the remaining
variables (GDP, INF, and FDI) do not Granger cause each other. In the
case of Turkey, REER and GDP indicates absence of causality and this suggests
that there is no causality between exchange rate and economic growth. The result also revealed that the causality
between exchange rate and inflation, exports, and imports is bidirectional.
Lastly, REER does not Granger cause FDI, but FDI and GDP Granger cause REER and
this implies that there is a unidirectional causality running from foreign
direct investment and Gross Domestic Product to exchange rate. From the
empirical results, this study concludes that exchange rate cannot predict the
movement of GDP, Foreign Direct Investment, inflation, export and import in
Nigeria. However, policy makers can employ the rate of import and export in the
economy to stabilize exchange rate in Nigeria. As a result of the bidirectional
causality between exchange rate, inflation, export and import in Turkish
economy except GDP and Foreign Direct Investment, the study also concludes
that, exchange rate can predict or cause significant changes in macroeconomic
performances of the economy. Therefore, it’s recommended that exchange rate
should be used to ensure sound performances of the macroeconomic variables in
the Turkish economy
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