Financial Globalization and Exchange Rate uncertainty in Nigeria : A Band-Pass Filter Approach

Exchange rate uncertainty has been one of the many challenges implicated as the biggest developmental and growth obstacle facing Nigeria as a nation. This study estimates financial globalization, output growth and financial uncertainty nexus in Nigeria. The research is carried under the assumption that exchange rate uncertainties are deemed to impact on the volume of export and import trading activities. Thus, we adopted the Pairwise Granger Causality model to estimate the causality relationships among financial globalization, output growth and volatility in exchange rate using a Single Equation Englo-Granger approach. The best lag selection criteria were employed to choosing the best lag for this analysis. We provide a link between the short-run and the long-run effect of the model(s). This study found that they is a positive interaction between financial volatility (exchange rate uncertainty) and output volatility in Nigeria. It shows that as financial volatility such as exchange rate uncertainty is increasing, output volatility will also be increased in the same direction. The government and the monetary authorities should be more focused on the strengthening the exchange rate, since stable exchange rate improves the terms of trade, strengthen the local capacity and increases output growth. However, addressing the heightened risks, including financial and operational risks due to economic recession as well as due to the market reforms themselves have remained the challenges of globalization in Nigeria