Does Sterilization Policy Exert an Upward Pressure on Interest Rate as Dictated by Theory? A Nigerian Example

The implications of capital inflows on the economy and the fall out of the policy geared towards addressing these phenomena, especially the impact of the policy on interest rate motivated us in this study. Under the framework of ARDL and using monthly series over a period of 2010M1-2021M3, our findings showed that in the short-run, sterilization policy leads to rising interest rate in the current period. However, after a lag, sterilization policy depresses interest rate. We equally found that in the long-run, sterilization policy pushes interest rate up. In another direction, we observed a negative relationship between money supply and interest rate both in the short-run and in the long-run and the exogenous variables in the model influence interest rate significantly. We therefore recommend that different measures should be adopted to cushion the effect of unsustainable capital inflows to avoid repeated need for further sterilization and the increasing cost of sterilization in the long-run. It is also our advice that exogenous variables should be factored in when fashioning out a desirable interest rate in line with economic reality

FINANCING ENERGY DEVELOPMENT IN NIGERIA: Analysis of Impact on the Electricity Sector

ABSTRACT Funding provisions by policy makers are usually for two main purposes including poverty and inequalit

RISING EXTERNAL DEBT AND EXCHANGE RATE: EMPIRICAL EVIDENCE FROM NIGERIA

The fluctuating exchange rate and massive debt burden of Nigeria necessitates a thorough investigation of trends in her foreign debt levels, its underlying causes, and implications for economic growth. This study, therefore, investigated the impact of rising external debt on the exchange rate in Nigeria with annual data from 1980 to 2021. The motivation for this study was premised on inculcating government spending and inflation rate into the traditional analysis of exchange rate volatility in Nigeria using data sourced from CBN statistical bulletin (2020), DMO (2020), and WDI (2021). The data obtained were analyzed using the Augmented Dickey-Fuller (ADF) unit root test, Autoregressive Distributed Lag (ARDL) technique, and the stability and diagnostic test in the analysis. Based on the outcomes of the preliminary test analysis, the results show that external debt has a negative but insignificant effect on the exchange rate in Nigeria.  Also, external debt has a positive and significant effect on the inflation rate in Nigeria. In light of these findings, the study concluded and recommended that the Nigerian government and/ or Central Bank of Nigeria should ensure that all borrowed funds are effectively channelled into viable projects that will yield returns to service the debts as well as pay up the debt at maturity, which puts pressure on the foreign exchange market in the short term and consequently results in exchange rate fluctuations in terms of the depreciation of the naira in the country. Keywords: External debt stock, Debt service payment, Inflation rate, Exchange rate, Nigeria. JEL Classifications: E31, 34, 43, F31