Determination of optimal level of foreign reserves in Nigeria
This study adopts the "buffer stock model" advanced by Frenkel and Jovanovic (1981) to estimate the optimal level of foreign reserves for Nigeria. The Autoregressive Distributed Lag Approach (ARDL) was used to estimate the optimal foreign reserves function. The results show that the Nigeria's optimal reserves level responses to adjustment cost of holding reserves and exchange rate volatility and that importand opportunity cost of reserves holding have insignificant impact on Nigeria's optimal foreign reserves. The short run and long run estimates of the buffer stock model support the theory that foreign reserves holding in Nigeria is more sensitive to the precautionary than mercantilist motives of holding reserves. Thus, it is recommended that the Central Bank of Nigeria (CBN) should implement effective foreign reserves policies that consider exchange rate volatility, oil price volatility and global macroeconomic imbalances.
Year of publication: |
2020
|
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Authors: | Oyeniran, Ishola W. ; Alamu, Solomon A. |
Published in: |
CBN Journal of Applied Statistics. - Abuja : The Central Bank of Nigeria, ISSN 2476-8472. - Vol. 11.2020, 1, p. 65-85
|
Publisher: |
Abuja : The Central Bank of Nigeria |
Subject: | ARDL | exchange rate volatility | import | Nigeria | Optimal | Reserve |
Saved in:
freely available
Type of publication: | Article |
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Type of publication (narrower categories): | Article |
Language: | English |
Other identifiers: | 10.33429/Cjas.11120.3/5 [DOI] 1735933562 [GVK] hdl:10419/237424 [Handle] |
Classification: | F30 - International Finance. General ; F32 - Current Account Adjustment; Short-Term Capital Movements ; F36 - Financial Aspects of Economic Integration |
Source: |
Persistent link: https://www.econbiz.de/10012604570
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