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Impact of Exchange Rates on Agricultural Commodity Prices in Nigeria:

Evidence from the Autoregressive Distributed Lags (ARDL) Approach

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 Journal of JAE2S2 Vol. 3(2), 76-83, Nov., 2020
Agricultural Department of Agricultural Economics & Extension
Economics, University of Jos, Nigeria, Copyright © 2018
Printed in Nigeria. All rights of reproduction in any form reserved
Extension & Available on line: http://www:unijos.edu.ng/jaeess
Social Sciences ISSN: 2636-6940

Impact of Exchange Rates on Agricultural Commodity Prices in Nigeria:

Evidence from the Autoregressive Distributed Lags (ARDL) Approach
1Hamisu, S. A., 2Umar, M., 1Sani, S. A. & 1Adamu, U. A.
1
Department of Economics, ABU Business School, Ahmadu Bello University, Zaria, Nigeria.
2
Department of Agricultural Economics and Extension, Federal University Dutse, Jigawa State, Nigeria.

ABSTRACT
The current study examined the impact of exchange rates on agricultural commodity prices in Nigeria based on
monthly data spanning from January, 1995 to September, 2015. We applied autoregressive distributed lags
(ARDL) technique for the estimation analysis. The cointegration result shows that variables have long-run
relationship as null hypothesis of no cointegration is rejected at 1% level of significance. The main empirical
finding reveals a negative and significant impact of exchange rates on agricultural commodity prices.
Furthermore, a negative and significant impact of industrial prices on agricultural commodity prices is also
established, while a positive and significant impact among money supply, per-capita GDP and agricultural
commodity prices is also confirmed in Nigeria. Efficient exchange rate regime is the viable policy instruments
that could improve the living standards of the populace since exchange rate variations could lead to drastic
decline of the overall food prices in the country.

Keywords: Impact, Exchange rates, Agricultural, commodity prices, Nigeria.

INTRODUCTION
Volatility in the food prices is one of the significant key concerns for development practitioners and policy makers
globally. During some decades ago international and local prices of food geometrically increases and remain
volatile. This led to serious consequences more especially for the poor who mostly spent the major portion of their
income on food consumption (Banerjee and Duflo, 2007). Moreover, price volatility jeopardizes macroeconomic
stability and can disincentives food production (Haile et al., 2013) which requires to be extended with a view to
satisfy a growing demand for grains. The reasons and causes of international food prices instability has been
deeply deliberated among policy makers (Food and Agricultural Organization, et al., 2011) and academicians
(Wright, 2009). When the global economy shrinks and gulf into crisis 2007/2008, different countries-imposed
trade embargos on some foodstuffs with a view to control domestic prices. This led to further increase in the
international prices and importing countries are faced with difficulties to obtain sufficient grains.

The value of country’s currency in relation to other countries’ denominations is a significant determinant of its
overall local prices more specifically on the imported commodities. The impact is more noticeable in relation to
the global dominant currencies, e.g. American Dollar, United Kingdom Pound Sterling, Euro etc. Agricultural
commodity prices have substantial impact on the general prices of other commodities in different economies of
the world, this is due to the impact of agricultural commodities in the global market. The agricultural commodities
serve as an input to different companies, and also provides the nutritious need of the mankind. It is evident since
2000s that the agricultural commodities prices and that of fertilizer increases, this is also in line with then upsurge
of the global crude oil prices. The crude oil prices have a direct effect on the agricultural commodity prices through
its input prices. This means it has cost-push effects since the production of agricultural commodities may
sometimes rely on the use of crude oil more specifically petroleum.

This study investigates the impact of exchange rates on agricultural commodity prices in Nigeria based on the
monthly data spanning from January, 1995 to September, 2015. The model is however controlled with other
macroeconomic variables i.e. industrial prices, money supply, energy consumption, manufacturing value added
and per-capita GDP. Although, several studies were conducted about this relationship in different economies

Corresponding E-mail: hamisusadi@gmail.com

Hamisu, et al. JAE2S2 3(2), Nov. 2020

across the globe, however to our knowledge no study that applied autoregressive distributed lags (ARDL)
approach and examine this important macroeconomic relationship in the case of Nigeria has been done. While
most of the studies used individual agricultural commodity prices, we used cumulative food price index to observe
this important relationship. Therefore, this article filled the existing literature gap and contributed
methodologically and conceptually to this research segment. The food price index is the accumulation of different
agricultural product prices obtained the by FAO with a view to find a single index that represent the prices of
different agricultural commodities monthly. The rest of the paper is structured as follows; section two will dwell
on the reviews of related literature, section three will highlight on the empirical models, econometric
methodology; section four discussed the main finding and other sub-findings of the study; and lastly, section five
concludes and offers policy recommendations based on the research outcomes.

REVIEW OF RELATED LITERATURE

There lots of empirical studies that examine the impact of exchange rates on agricultural commodity prices in
different parts of the world economies. The results may vary considering the pattern or nature of econometric
techniques used, geographical locations, economic or social structure of the economies used. For example,
Campiche et al. (2007) investigated the covariability between crude oil prices and corn, sorghum, sugar, soybeans,
soybeans oil, and palm oil prices during 2003 to 2007. They applied vector error correction model for the
estimation analysis. The cointegrating result shows that corn and soybean prices have long run relationships with
crude oil price for the period of 2006 to 2007-time frame but they are cointegrated during the 2003 to 2005 time
period. Moreover, the findings from the same study show that crude oil prices do not adjust to alterations in the
corn and soybean market. Same study also conducted by Yu et al. (2006) that assess the cointegration and causality
relationship of crude oil prices on the demand price of vegetable oils. The study concluded that the effect of shocks
in the prices of crude oil on the variation in vegetable oil prices is relatively negligible, which seems to replicate
results in Zhang and Reed (2008).

Harri et al. (2009) obtained a long run equilibrium relationship between oil prices, exchange rates and all
agricultural prices except wheat. Kwon and Koo (2009) highlight on the inflation in US food markets between
1998 and 2008 through energy prices and exchange rate variations. Their finding is buttressed by Baek and Koo
(2010) that the exchange rate is a major determinant of US food prices. As highlighted by Von Braun and Torero
(2009), upsurge of agricultural prices were due to a compound set of consisted factors. Though, the increasing
agricultural commodity prices can be credited to three main factors (Abbott et al., 2008, 2009); variations in the
production and consumption of significant commodities, the depreciation of the US dollar, and the
energy/agriculture connection.

Moreover, Frank and Garcia (2010) applied weekly data from 1998 to 2009 and examined the linkages between
exchange rates, oil prices and different agricultural commodity prices (i.e. wheat, corn, cattle and hogs) based on
VAR and VECM techniques. The empirical findings reveal that for the first sub-period the exchange rates effect
on agricultural commodity prices is limited, however in the second sub-period the effects of exchange rates on
agricultural commodity prices is higher and robust. Nazlioglou and Soytas (2012) empirically examine the
dynamic impact of oil price, US dollar exchange rates and 24 agricultural commodity prices based on panel data
framework of panel cointegration and causality for the period of January 1980 to February 2010. The result shows
that the impact of US dollar exchange rates on agricultural commodity prices is positive and statistically
significant in all the crops used except coconut oil, cacao, and coffee. However, the panel coefficient of
agricultural commodity prices and exchange rate is -0.71 and -0.72 respectively.

Gozgor and Kablamaci (2014) empirically examine the systematic relationship between world oil prices and
agricultural commodity prices and incorporate US dollar to measure the global market risks for the period of
January 1990 to June 2013. They initially determine the significant cross-sectional dependence in a large panel
balanced panel structure for 27 commodity prices and later on applied second generation panel unit root tests. The
finding-based on panel unit root tests evidently suggest a robust unit root in agricultural commodity prices.
Moreover, the main empirical result from the fixed effects panel data, panel co-integration analysis, the Panel-
Wald Causality tests, and the common correlated effects mean group estimations intensely show that the world
oil price and the weak US dollar are positively related with the agricultural commodity prices. Rezitis (2015)
examine the long run relationships between crude oil prices, US dollar exchange rates and prices of selected
international agricultural prices as well as international fertilizer prices. The paper used panel econometric
approach for the period of 1983 to 2013. The empirical finding in the long run shows that the impact of US dollars
exchange rates on agricultural commodity prices negative and statistically significant.

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Hamisu, et al. JAE2S2 3(2), Nov. 2020

METHODOLOGY
Models and econometric methodology
The econometric methodology used in this study is autoregressive distributed lags (ARDL, due to the nature of
the study data. It is used in the study considering its diverse advantages over other time series techniques like
VECM, or Johansen cointegration analysis. Some of its advantages includes; i) it is applied even when the sample
size is small, ii) It is applied with the combination of I(0) and I(1) variables. Therefore, the main model of the
study is presented as follows:
𝐴𝐶𝑃 = A𝛼1 EXR𝛼2 𝐼𝑁𝑃𝐼 𝛼3 𝑀𝑆𝑆 𝛼4 𝑀𝑆𝑆 𝛼5 𝐸𝑁𝐶 𝛼6 𝑀𝑉𝐴 𝛼7 𝐺𝐷𝑃𝐶 (1)

When we transform the variables, equation (2) is obtained below:

𝑙𝑛𝐴𝐶𝑃 = A𝛼1 𝑙𝑛EXR𝛼2 𝑙𝑛𝐼𝑁𝑃𝐼 𝛼3 𝑙𝑛𝑀𝑆𝑆 𝛼4 𝑙𝑛𝑀𝑆𝑆 𝛼5 𝑙𝑛𝐸𝑁𝐶 𝛼6 𝑙𝑛𝑀𝑉𝐴 𝛼7 𝑙𝑛𝐺𝐷𝑃𝐶 (2)

We applied autoregressive distributed lags (ARDL) with the main objective to establish the relationships among
the variables as presented in the equation (3) below:
∆𝑙𝑛𝐴𝐶𝑃𝑡 = 𝛼0 + 𝛼1 𝑙𝑛𝐴𝐶𝑃𝑡−1 +𝛼2 𝑙𝑛EXR 𝑡−1 + 𝛼3 𝑙𝑛𝐼𝑁𝑃𝐼𝑡−1 + 𝛼4 𝑙𝑛𝑀𝑆𝑆𝑡−1 + 𝛼5 𝑙𝑛𝐸𝑁𝐶𝑡−1 + 𝛼6 𝑙𝑛𝑀𝑉𝐴𝑡−1 +
𝑝 𝑞 𝑝
𝛼7 𝑙𝑛𝐺𝐷𝑃𝐶𝑡−1 + ∑𝑖 𝛾𝑖 ∆𝑙𝑛𝐴𝐶𝑃2 𝑡−1 +∑𝑗 𝛿𝑗 ∆𝑙𝑛EXR 𝑡−𝑗 + ∑𝑙 𝜑𝑙 ∆𝑙𝑛𝐼𝑁𝑃𝐼𝑡−𝑙 + ∑𝑝𝑙 𝜔𝑘 ∆𝑙𝑛𝑀𝑆𝑆𝑡−𝑚 +
𝑝 𝑝 𝑝
∑𝑚 𝜔𝑘 ∆𝑙𝑛𝐸𝑁𝐶𝑡−𝑛 + ∑𝑛 𝜔𝑘 ∆𝑙𝑛𝑀𝑉𝐴𝑡−𝑜 + ∑𝑜 𝜔𝑘 ∆𝑙𝑛𝐺𝐷𝑃𝐶𝑡−𝑝 + 𝜀𝑡 (3)
Where lnACP is the logarithm of agricultural commodity prices, lnEXR is the logarithm of exchange rates, lnINPI
is the logarithm of industrial prices, lnMSS refers to logarithm of money supply, lnENC is the logarithm of energy
consumption, lnMVA is the logarithm of manufacturing value added, and lnGDPC refers to the logarithm of per-
capita GDP. The subscript t represent time period of the study (January, 1995 to September, 2015). The initial
stage is to estimate equation (3) based on ordinary least square (OLS) and explore the joint significance of the
coefficients of the lagged variables based on Wald test of F-test with the aim to see the long-run relationship of
the variables.

Test of significance of hypothesis

Moreover, the null hypothesis of no cointegration will be tested against the alternate hypothesis of cointegration.
Pesaran et al. (2001) suggested that when the calculated F-statistics are greater than the upper critical bound, we
reject the null hypothesis which signifies the presence of long-run relationship among the variables. However,
when the calculated F-statistics fall below the value of critical bound, we cannot reject null hypothesis, hence the
long-run relationship does not exist among the variables. While, when the value of the calculated F-statistic falls
between upper and lower critical bounds, the result is considered indecisive (Pesaran & Pesaran, 1997). The long-
run relationship is tested based on equation (4) below:
𝑝 𝑞1 𝑞2 𝑞3
ln𝐴𝐶𝑃𝑡 =𝛼0 + ∑𝑖=1 𝛾𝑖 𝑙𝑛𝐴𝐶𝑃𝑡−1 + ∑𝑗=0 𝛿𝑗 𝑙𝑛EXR 𝑡−𝑎 +∑𝑖=0 𝜑𝑙 𝑙𝑛𝐼𝑁𝑃𝐼𝑡−𝑏 +∑𝑚=1 𝜂𝑚 𝑙𝑛𝑀𝑆𝑆𝑡−𝑐 +
∑𝑞4 𝑞5 𝑞6
𝑗=0 𝛿𝑗 𝑙𝑛ENC𝑡−𝑑 + ∑𝑗=0 𝛿𝑗 𝑙𝑛MVA 𝑡−𝑒 + ∑𝑗=0 𝛿𝑗 𝑙𝑛GDPC𝑡−𝑓 + 𝜀𝑡 (4)
The lag length of the model is choose based on Akaike Information Criterion (AIC), and the error correction model
(ECM) is used to determine the short run dynamics of the variables as represented in equation (5) below:
𝑝
∆𝑙𝑛𝐴𝐶𝑃𝑡 = 𝛼0 + ∑𝑖 𝛾𝑖 ∆𝑙𝑛𝐴𝐶𝑃𝑡−1 +
∑𝑞𝑗 𝛿𝑗 ∆ 𝑙𝑛𝐸𝑋𝑅𝑡−𝑓 +∑𝑞𝑖 𝜑𝑙 ∆𝑙𝑛𝐼𝑁𝑃𝐼𝑡−𝑔 + ∑𝑞𝑚 𝜂𝑚 ∆ 𝑙𝑛𝑀𝑆𝑆𝑡−ℎ + ∑𝑞𝑖 𝜑𝑙 ∆𝑙𝑛𝐸𝑁𝐶𝑡−𝑖 + ∑𝑞𝑖 𝜑𝑙 ∆𝑙𝑛𝑀𝑉𝐴𝑡−𝑗 +
∑𝑞𝑖 𝜑𝑙 ∆𝑙𝑛𝐺𝐷𝑃𝐶𝑡−𝑘 + 𝜗𝑒𝑐𝑚𝑡−1 + 𝜀𝑡 (5)
The model stability of the long-run coefficient and dynamics of the short run is determined based on the
cumulative sum of recursive residuals (CUSUM) and the cumulative sum of squares of recursive residuals
(CUSUMSQ) as emphasized by Pesaran and Pesaran (1997).

Data
The data used in this study ranges from January, 1995 to September, 2015 and is obtained from different sources
depending on the variable. Agricultural commodity prices is measured by food price index and is obtained from
Food and Agricultural Organization (FAO). However, exchange rates that is proxied by the value of Nigerian
Naira in relation to $USD and industrial price index are obtained from Central Bank of Nigeria (CBN).
Furthermore, money supply is measured by the broad money as a percentage of GDP, energy consumption is
proxied by the energy use (kilogram of oil equivalent per capita). Manufacturing value added as a ratio of GDP,
and Per-capita GDP are all obtained from World Development Indicators (WDI) World Bank data base.

Empirical results and discussions

The stationary test is conducted to identify the order of integration of the variables before the main model
estimation. ARDL require the variables to integrate either in level I(0) or first difference I(1). The unit root test is
tested based on Augmented Dickey Fuller (ADF) and Phillips-Perron (PP). The result as reported in table 1 shows
that all the variables except industrial prices are non-stationary at level, but become stationary after taking first
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Hamisu, et al. JAE2S2 3(2), Nov. 2020

difference. This means that agricultural commodity prices, exchange rates, money supply, energy consumption,
manufacturing value added, and per-capita GDP are I(1) variables. However, industrial prices is stationary at
level, which means is I(0) variable. Since our variables are combination of I(0) and I(1) variables, ARDL is the
most suitable method for this study analysis as recommended by Pesaran et al. (2001).

Table 1: Unit root test result based on Augmented Dickey Fuller (ADF) and Phillips Perron (PP).
ADF PP
Level

Variables Constant Without Constant With Constant Without Constant With

Trend Trend Trend Trend

lnACP𝑡 -1.243 -2.104 -1.119 -1.710

lnEXR 𝑡 -0.850 -1.993 -0.971 -2.319

ln𝐼𝑁𝑃𝐼𝑡 -2.590* -3.121 -2.275 -2.302

ln𝑀𝑆𝑆𝑡 -1.992 -1.869 -2.014 -1.899

ln𝐸𝑁𝐶𝑡 -1.787 -1.310 -1.787 -1.323

ln𝑀𝑉𝐴𝑡 -0.659 -1.218 -0.662 -1.215

ln𝐺𝐷𝑃𝐶𝑡 -0.559 -2.673 -0.536 -2.681

First Difference

lnACP𝑡 -6.626*** -6.613*** -9.296*** -9.278***

lnEXR 𝑡 -14.099*** -14.061*** -14.198*** -14.159***

ln𝐼𝑁𝑃𝐼𝑡 -3.855*** -3.935** -14.696*** -14.763***

ln𝑀𝑆𝑆𝑡 -15.654*** -15.653*** -15.654*** -15.653***

ln𝐸𝑁𝐶𝑡 -15.676*** -15.749*** -15.676*** -15.749***

ln𝑀𝑉𝐴𝑡 -15.669*** -15.784*** -15.669*** -15.785***

ln𝐺𝐷𝑃𝐶𝑡 -15.970*** -15.937*** -15.982*** -15.949***

N.B: ADF and PP test equations include both constant and trend terms. *** represent significance level at 1%,
**5%, and *10% for hypothesis rejection respectively.

The cointegration result is reported in table 2, it shows that the calculated F-statistics (4.978) is higher than the
upper critical bounds of tabulated F-statistics as obtained in the Pesaran et al. (2001) critical values for large
sample analysis. It reveals that the value found is greater than all the three upper critical bounds at 1%, 5%, and
10% respectively. Therefore, we select 1% as the most preferred critical rejection region, hence this signify that
the variables have long-run relationships. Since, we established the long-run relationships among the variables,
we move to estimate the long-run estimated impacts of the variables on agricultural commodity prices as reported
in Table 3.

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Hamisu, et al. JAE2S2 3(2), Nov. 2020

Table 2: Results of ARDL bound test

Estimated model Lag F- Significance Critical bound
length statistics level ______________________
F-statistics
__________________
I(0) I(1)
F𝐴𝐶𝑃 (𝐸𝑋𝑅|INPI|MSS|ENC|MVA|GDPC 4 4.978 1% 2.88 3.99
5% 2.27 3.28
10% 1.99 2.94

Asymptotic critical value bounds are obtained from table F-statistic in appendix CI, Case II: Intercept and no
trend for k=6 (Pesaran et al., 2001. p. 300). *** is use to represent 1%, ** 5% and *10% for the rejection of
hypothesis respectively.

The main empirical finding shows that exchange rates have a negative and significant impact on agricultural
commodity prices in Nigeria. This means 1% change in exchange rates could lead to the reduction of
agricultural commodity prices by 0.389%. This finding is in line with that of Rezitis (2015), and Awan and
Imran (2015), and however contradict that of Nazlioglu and Soytas (2011), and Gozgor and Kablamaci (2014).
The result based on other control variables also shows that; industrial prices and manufacturing value added
have a negative and significant impact on agricultural commodity prices. Furthermore, 1% change in industrial
prices and manufacturing value added resulted in the decline of agricultural commodity prices by -2.069% and
-0.195% respectively. However, the relationship between per-capita GDP, money supply and agricultural
commodity prices is positive and significant. This means 1% change in per-capita GDP and money supply
stimulates agricultural commodity prices to increase by 0.549% and 0.244% respectively.

Table 3: Estimated long-run coefficients based on Schwarz Bayesian Criterion (SBC) Dependent variable
(𝒍𝒏𝑨𝑪𝑷)
Regressors Coefficients T-ratio (p-values)

lnEXR 𝑡 -0.389 -1.698(0.091)*

ln𝐼𝑁𝑃𝑡 -2.069 -3.645(0.000)***

ln𝑀𝑆𝑆𝑡 0.244 1.734(0.084)*

ln𝐸𝑁𝐶𝑡 1.067 0.880(0.380)

ln𝑀𝑉𝐴𝑡 -0.195 -1.689(0.093)*

ln𝐺𝐷𝑃𝐶𝑡 0.549 7.629(0.000)***

Note: *** represent significance level at 1%, **5%, and ***10% respectively.

The short run is reported in Table 4, the main finding indicate that exchange rate does not have significant impact
on agricultural commodity prices in the short run. Although, the coefficient remains the same with what is obtained
in the long run, but is the short run it remains insignificant. While, money supply remains consistent with what is
obtained in the long-run, per-capita GDP is decreasing agricultural commodity prices in the short run. Moreover,
manufacturing value added is consistent with the finding of the long run that it decreases agricultural commodity
prices. However, industrial prices have a positive and significant impact on agricultural commodity prices in the
short run as oppose the finding of the long run phenomenon. The error correction term is in line with the
econometric theory, due to the fact that the coefficient is negative, statistically significant at 1% level, and less
than one (-0.058). The value of the error correction coefficient means that when the variable deviate from the
equilibrium, it takes about 5.8 months to converge to its initial equilibrium, hence this reconfirm the convergence
to equilibrium in case of any deviation, and as such ratify the existence of long run relationship in the model.

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Table 4: Short-run coefficients result from error correction model based on SBC Dependent variable
(𝒍𝒏𝑨𝑪𝑷)
Regressors Coefficients T-ratio (p-values)

lnEXR 𝑡 -0.003 -0.068(0.945)

ln𝐼𝑁𝑃𝑡 0.760 3.284(0.001)***

ln𝑀𝑆𝑆𝑡 0.071 2.794(0.006)***

ln𝐸𝑁𝐶𝑡 0.061 0.915(0.361)

ln𝑀𝑉𝐴𝑡 -0.011 -2.350(0.006)***

ln𝐺𝐷𝑃𝐶𝑡 -0.057 -2.826(0.005)***

ECM(-1) -0.058 -2.975(0.003)***

N.B: ***represent significance level at 1%, **5%, and *10% respectively.

A diagnostic test is conducted with a view to certify the efficiency and test the model’s reliability. The test result
is reported in Table 5 and shows that our model is highly efficient and reliable due to its ability to pass all the four
time series problems of auto correlation, functional form, normality, and heteroscedasticity. This is because all
the p-values of the mentioned supposed problems is greater than 5% (0.05%), hence cannot be rejected which
testify the efficiency and reliability on the model. The stability of the model is shows by the cumulative sum of
recursive residuals (CUSUM) and the cumulative sum of squares of recursive residuals (CUSUM of squares) in
Figures 1 and 2 in the appendix.

Table 5: ARDL diagnostic test results

Test statistics LM version F-version
1: Serial correlation CHSQ(12) = 10.310[0.589] F(12, 208) = 0.764[0.686]
2: Functional form CHSQ(1) = 1.203[0.273] F(1, 219) = 1.085[0.299]
3: Normality CHSQ(2) = 5.297[0.071] N/A
4: Heteroscedasticity CHSQ(1) = 5.540[0.091] F(1, 242) = 0.5.622[0.087]
N.B: *** represent significance level at 1%, **5%, and *10% respectively.

CONCLUSION AND POLICY RECOMMENDATIONS

The main objective of this article is to examine the impact of exchange rates on agricultural commodity prices in
Nigeria for the period of January 1995 to September 2015. Autoregressive distributed lags (ARDL) approach is
applied to achieve the stated objectives. The main empirical finding reveals a negative and significant relationship
between exchange rates and agricultural commodity prices in Nigeria. This means US dollar exchange rate
fluctuations in relation to Nigeria’s Naira reduces agricultural prices level in the country. The key finding further
reveal that 1% change in the exchange rate could lead to 0.389% decrease of agricultural commodity prices in
Nigeria. Moreover, there exist a negative and significant impact of industrial prices on agricultural commodity
prices. However, there is a positive and significant relationships among money supply, per-capita GDP and
agricultural commodity prices.

The policy recommendation considering the research outcome is that since exchange rate variations between US
dollar and Nigeria’s Naira is negative, it is imperative for the policy makers more specifically the monetary policy
segment to ensure the value of our local currency is stable and can compete favourably with the value of US
dollar. Therefore, considering the significant role of food prices in the economy, efficient exchange rate regime
could serve as a policy tool that could be applied to help the economic nutritional needs of the populace through
various instruments that strengthen the value of the Naira at the detriment of the foreign currencies more especially
the US dollar. Extending the provision of forex to the investors and importers of agro-allied equipment could ease
the exchange rates problems and hence will cause the prices of the end products to substantially decline which
would help the masses in the long run.

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Appendix

Fig. 1 Plot of cumulative sum of recursive residuals

40
30
20
10
0
-10
-20
-30
-40
1995M6 1998M10 2002M2 2005M6 2008M10 2012M2 2015M6 2015M9
The straight lines represent critical bounds at 5% significance level

Fig. 2 Plot of cumulative sum of squares of recursive residuals

1.5

1.0

0.5

0.0

-0.5
1995M6 1998M10 2002M2 2005M6 2008M10 2012M2 2015M6 2015M9

The straight lines represent critical bounds at 5% significance level

83

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