This paper employs the ARDL model with structural breaks to determine the influence of policy and institutions on the dwindling exchange rate. The data were obtained from the apex bank Statistical Bulletin and the World Bank Development Indicators. Institutions were proxied by contract intensive money and revenue source volatility, while a policy change dummy covers the influence of exchange rate policy and Financial Sector Development (FSD) serves as the control variable. After ascertaining the statistical features of the variables, and accounting for structural breaks, the short-run and long-run were estimated. Findings shows significant and positive effects of revenues sources volatility on the volatility of exchange rates, also, the contract intensive money also impacted on the exchange rate volatility but the effect is trivial in the long run. It is observed that financial sector development has no significant impact in the short and the long term. It is concluded that vibrant institutions and policy interventions play a key role in resolving exchange rate volatility and suggests specifics reforms on improving economic institutions, development of financial sector is a key in order to stabilize the exchange rates in Nigeria.
Wasiu Omotayo LAWAL (Wed,) studied this question.
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