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Nonlinear Adjustments Between Exchange Rates And External Reserves In Nigeria: A Threshold Cointegration Analysis, Isaiah O. Ajibola, Ubong S. Udoette, Babatunde S. Omotosho, Rabia A. Muhammad
Nonlinear Adjustments Between Exchange Rates And External Reserves In Nigeria: A Threshold Cointegration Analysis, Isaiah O. Ajibola, Ubong S. Udoette, Babatunde S. Omotosho, Rabia A. Muhammad
CBN Journal of Applied Statistics (JAS)
This study investigates the long run relationship between exchange rate and external reserves in Nigeria during 1990Q1 – 2012Q4. We confirm the existence of threshold cointegration between the variables in Nigeria, as against linear cointegration. Consequently, a two-regime threshold vector error correction model (TVECM) is estimated via maximum likelihood procedure. Model results indicate that cointegration between the variables occurs only when the equilibrium error exceeds an estimated threshold parameter of 0.52. Having partitioned the TVECM into two regimes based on the obtained threshold, we find that the error correction coefficients of the exchange rate in the two regimes are not …