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The Economics and Finance Letters

March 2019, Volume 6, 1, pp 1-8

Exchange Rate and Foreign Reserves Interface: Empirical Evidence from Nigeria

Ebere Ume Kalu


Ogochukwu E. Ugwu


Victor Chijioke Ndubuaku


Ozioma Patricia Ifeanyi

Ebere Ume Kalu 1

Ogochukwu E. Ugwu 2

Victor Chijioke Ndubuaku 3 Ozioma Patricia Ifeanyi 3 

  1. University of Nigeria, Nsukka, Nigeria 1

  2. Enugu State University of Science and Technology, Enugu State, Nigeria 2

  3. Federal College of Agriculture, Isiagu, Ebonyi State, Nigeria 3

Pages: 1-8

DOI: 10.18488/journal.29.2019.61.1.8

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Article History:

Received: 16 October, 2018
Revised: 26 November, 2018
Accepted: 24 December, 2018
Published: 22 January, 2019


This work was set out to measure the responsiveness of foreign reserves to exchange rate variables with a focus on the Nigerian economy. Foreign reserve was used as a dependent variable and all the exchange rate related variables used as independent variables. Time series data spanning 1996 to 2016 was used. A combined use of the Auto Regressive Distributed Lag Model (ARDL) and correlation matrix were employed. It was found that a positively significant relationship exists between real exchange rate and reserves with nominal exchange rate sharing a positive but non-significant relationship with foreign reserves. This makes a case for proper policy direction in the management of exchange rate in a manner that produces the best economic results for the Nigerian economy. The results are considered useful for economies in the shape of Nigeria for generalization and policy direction in the management of foreign reserve and its interface with exchange rate and its related factors.
Contribution/ Originality
This study contributes to the existing literature by uncoupling exchange rate into nominal and real in measuring the nexus with foreign reserves. This study uses new estimation methodology which is the ARDL approach unlike prior studies that used OLS predominantly. The paper contributes the first logical analysis by carrying out pre-test, estimation proper and diagnostic analyses. The paper's primary contribution is that it exposes the fact that a nexus exists between foreign reserves and changes in exchange rate.


ARDL,, Exchange rate, Foreign reserves, Diagnostic tests, Nominal exchange rate, Real exchange rate.




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This study received no specific financial support.

Competing Interests:

The authors declare that they have no competing interests.


All authors contributed equally to the conception and design of the study.

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