Exchange Rate and its Volatility Effects of Covid-19 Pandemic: The Nigeria Case
Keywords:
Pandemics, Foreign exchange, Autoregressive Distributed lag (ARDL), Generalized Autoregressive Conditional Heteroscedasticity (GARCH) Model
Abstract
The debate on the impacts of Covid -19 pandemic on exchange rate and its volatility is up and running. This study examines the case of Nigeria. Daily data from March 20, 2020 to September 3, 2021 for relevant variables were utilized. The bounds test for cointegration and autoregressive distributed lag (ARDL) and GARCH (1,1) methods were employed to examine the effect. The bounds co-integration test results disclosed that there is both short-run and long-run relationship among the variables. The result from the ARDL estimation shows that new Covid-19 cases has a positive but insignificant effect on parallel market exchange rate while numbers of recovered patients from covid-19, oil and stock prices negatively and significantly affects parallel market exchange rate. Results from the GARCH also indicates that new Covid-19 cases have negative, albeit, insignificant effect on the parallel market exchange rate volatility while recovered cases of Covid-19 has negative and significant effect. Further, oil and stock prices have positive and significant effect on parallel market exchange rate volatility. Following these results, it was recommended that government should embark on policy that will diversify its revenue base and also intensify efforts on preventing any forms of pandemic so as not only to achieve the objective of increasing the value of Nigeria currency but also to reduce its volatility.
References
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Pesaran, M., & Pesaran, B. (1997). Working with microfit 4.0: Interactive econometric analysis. Oxford University Press, Oxford.
Pesaran, M., Shin, Y., & Smith, R (2001) Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16(3), 289-326.
Sharma, G., A., Tiwari, M., Jain, A., Yadav, & Erkut, B. (2021). Unconditional and conditional analysis between covid-19 cases, temperature, exchange rate and stock markets using wavelet coherence and wavelet partial coherence approaches. Heliyon, 7(2), e06181:1-30.
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Yilmazkuday, H. (2022). COVID-19 and exchange rates: Spillover effects of U.S. monetary policy. Atlantic Economic Journal. 50(1-2), 67-84.
Zahro, S., Pontoh, R., Hidayat, Y., & Jiwani, N. (2020). Indonesian Rupiah exchange rate in facing COVID-19 (A time series-machine learning approach). Journal of Advanced Research in Dynamical and Control Systems, 12(6), 862-872.
Abu Bakar, N., & Rosbi, S. (2020). Effect of coronavirus disease (COVID-19) to tourism industry. International Journal of Advanced Engineering Research and Science 7(4), 1-20
Abubakar, A (2019). Oil price and exchange rate nexus in Nigeria: are asymmetries matter? CBN-Journal of Applied Statistics, 10(1), 1-21.
Aslam, F., S. Aziz, D. Nguyen, Mughal, K., & M. Khan (2020). On the efficiency of foreign exchange markets in times of the COVID-19 pandemic. Technological Forecasting and Social Change, 161, 120261.
Beckmann, J., Crudaj, R., & Arora, V. (2020). The relationship between oil price and exchange rate: Revisiting theory and evidences. Energy Economics, 88(103663).
Bhattachryya, R., Rama, S., Kumar, A., & Banerjee, I. (2021). Dynamic structural impact of the COVID-19 outbreak on the stock market and the exchange rate: A cross-country analysis among BRICS nations. Corpus ID: 231861857.
Cardona-Arenas, C., & Serna-Gómez, H. (2020). COVID-19 and oil prices: Effects on the Colombian Peso exchange rate. SSRN Electronic Journal.
dx.doi.org/10.2139/ssrn.3567942.
CBN, (2021). Central Bank of Nigeria Statistical Bulletin. Central Bank of Nigeria, Abuja, Nigeria.
Cutcu, I., & Dineri, E. (2021). The effect of the pandemic on exchange rates: An application on Turkey. International Journal of Economics, Politics, Humanities & Social Science, 4(4), 182-193
Devpura, N. (2021). Effect of COVID-19 on the relationship between Euro/USD exchange rate and oil price. Methods X 8(3), 101262.
Fang, X., & Cao, W. (2021). The impact of COVID-19 on the status of RMB as an anchor currency. Asian Economics Letters, 2(1). https://doi.org/10.46557/001c.21439
Feng, G., Yang, H., Gong, Q., & Chang, C. (2021). What is the exchange rate volatility response to COVID-19 and government interventions? Economic Analysis and Policy, 69, 705-719.
Garg, B., & K. Prabheesh (2021). The nexus between the exchange rates and interest rates: evidence from BRIICS economies during the COVID-19 pandemic. Studies in Economics and Finance, 38(2), 469-486.
Gherghina, S., Ștefan, D.A., & Joldeș, C. (2021). COVID-19 pandemic and Romanian stock market volatility: A GARCH Approach. Journal of Risk and Financial Management 14(8), 341-379
Greene, W. (2005). Econometrics analysis (6th ed.). Upper Saddle River, New Jersey, Prentice Hall.
Hoshikawa, T., & Yoshimi, T. (2021). The effect of the COVID-19 pandemic on South Korea's stock market and exchange rate. The Developing Economies, 59(2), 206-222.
Hussain, M., Bashir, U., & Rehman, R. (2023). Exchange rate and stock prices volatility connectedness and spillover during pandemic induced-crises: Evidence from BRICS countries. Asia-Pacific Finance Markets, 1, 1–21. https://doi.org/10.1007/s10690-023-09411-0.
Jalil, A., Ma, Y., & Naveed, A. (2008). The finance-fluctuation nexus: Further evidence from Pakistan and China. International Research Journal of Finance and Economics, 3(14), 212-231.
Jamal, A., & Bhat, M. (2022). COVID-19 pandemic and the exchange rate movements: evidence from six major COVID-19 hot spots. Future Business Journal, 8(17), 1-11.
Jawadi, F., & Sellami, M. (2021). Effects of oil price volatility in the COVID-19 context. International Journal of Finance & Economics, 1-10.
Kumeka, T, D., Uzoma-Nwosu, M., & Wayas, D. (2022). The effects of COVID-19 on the interrelationship among oil prices, stock prices and exchange rates in selected oil exporting economies, Resource Policy, 77(102744).
Kunjal, D. (2023). The impact of COVID-19 on the returns of South African exchange traded funds. Acta Universitatis Danubius. Œconomica, 19(2), 258-268.
Narayan, P., Devpura, N., & Wang, H. (2020). Japanese currency and stock market—What happened during the COVID-19 pandemic? Economic Analysis and Policy, 68,191-198.
Nwosa, P. (2020). Oil price, exchange rate and stock market performance during the COVID-19 pandemic: implications for TNCs and FDI inflow in Nigeria. Transnational Corporations Review, 13(1), 125-137.
Olubiyi, E., & Olopade, P. (2018). On the efficiency of stock markets: A case of selected OPEC member countries, CBN-Journal of Applied Statistics, 9(2),75-101,
Pesaran, H., Shin, Y., & Smith, R. (2001). Bounds testing approach to the analysis of levels relationships. Journal of Applied Econometrics, 16, 289-326.
Pesaran, M., & Shin, Y. (1999) An autoregressive distributed lag modelling approach to cointegration analysis, In S., Strom (Ed.). Econometrics and economic theory in 20th century: The Ragnar Frisch Centennial Symposium, Part V, Chapter 11, Cambridge University Press, Cambridge.
Pesaran, M., & Pesaran, B. (1997). Working with microfit 4.0: Interactive econometric analysis. Oxford University Press, Oxford.
Pesaran, M., Shin, Y., & Smith, R (2001) Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16(3), 289-326.
Sharma, G., A., Tiwari, M., Jain, A., Yadav, & Erkut, B. (2021). Unconditional and conditional analysis between covid-19 cases, temperature, exchange rate and stock markets using wavelet coherence and wavelet partial coherence approaches. Heliyon, 7(2), e06181:1-30.
Villarreal-Samaniego, D. (2021). The dynamics of oil prices, COVID-19, and exchange rates in five emerging economies in the a typical first quarter of 2020 Estudios Gerenciales, 37(158), 17-27.
Yilmazkuday, H. (2022). COVID-19 and exchange rates: Spillover effects of U.S. monetary policy. Atlantic Economic Journal. 50(1-2), 67-84.
Zahro, S., Pontoh, R., Hidayat, Y., & Jiwani, N. (2020). Indonesian Rupiah exchange rate in facing COVID-19 (A time series-machine learning approach). Journal of Advanced Research in Dynamical and Control Systems, 12(6), 862-872.
Published
2024-03-06
Section
Articles
