Still on the equilibrium real exchange rate of the naira: a re-examination

Abstract

This study estimates the equilibrium real exchange rate for Nigeria using the Purchasing Power Parity (PPP) approach and the Behavioural Equilibrium Exchange Role (BEER) model as well as, determined the extent, of Naira exchange rate misalignment over the period l970 q1 to 2013 q4. Evidence of three major episodes of over/undervaluation of the nominal exchange rate using the PPP were provided. The WER model results established the existence of a long-run interaction between the real exchange rate (RER) and the fundamental variables. ln particular, the behaviour of the RER is determined by the degree of openness, net foreign asset, real interest rate differential and government spending. Furthermore, the result suggest that 4.9 per cent of the short-run shocks are obviated each quarter.