Exchange rate volatility and trade balance: evidence from Nigeria
Dada James Temitope, Olomola Philips Akani
This paper examines the effect of exchange rate volatility on trade balance in Nigeria using monthly data from 2000:1 to 2015:12. Generalized Autoregressive Conditional Heteroscedacity (GARCH 1, 1) was used to generate exchange rate volatility; and the result reveals the presence of exchange rate volatility. Applying Autoregressive Distributed Lag framework, the result shows that the model corrects its short run dis-equilibrium by 52% monthly. Furthermore, the results reveal that real exchange rate and exchange rate volatility has negative effect on trade balance both in short run and long run. Real domestic income has a positive but insignificant effect on trade balance both in the short run and long run.