Exchange rate depreciation, budget deficit, and inflation
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Exchange rate depreciation, budget deficit, and inflation the Nigerian experience by Festus O. Egwaikhide

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Published by African Economic Research Consortium in Nairobi .
Written in English

Subjects:

Places:

  • Nigeria.

Subjects:

  • Foreign exchange rates -- Nigeria.

Book details:

Edition Notes

StatementFestus O. Egwaikhide, Louis N. Chete, Gabriel O. Falokun.
SeriesAERC research paper ;, 26
ContributionsChete, Louis N., Falokun, Gabriel O.
Classifications
LC ClassificationsHG3987.7 .E49 1994
The Physical Object
Pagination45 p. :
Number of Pages45
ID Numbers
Open LibraryOL963786M
ISBN 109966900136
LC Control Number95983497

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Budget Deficit Inflation "This study examined the quantitative effects of exchange rate depreciation on inflation, government revenues and expenditures, and money supply in by: Rudiger Dornbusch's articles on exchange rates and open economy macroeconomics are among the most frequently cited in the field of international economics. Collected for the first time in Exchange Rates and Inflation, these articles, written over the past fifteen years, cover a wide range of issues while providing unique insights into the research style of a major economist.5/5(1). budget deficit will result in a decrease i n interest rates but ex pected inflation falls appreciation of the exchange rate its r eal effects on exchan ge rate is not clear cu t. Some takes place. Fiscal Deficits, Exchange Rate Crises and Inflation Sweder van Wijnbergen. NBER Working Paper No. Issued in NBER Program(s):International Trade and Investment, International Finance and Macroeconomics The analysis focuses on the government budget constraint and the resolution of inconsistent implications of different policy instruments under that constraint.

  As part of the attempt to fill this gap, this study examines the quantitative effects of exchange rate depreciation on budget deficit and inflation in Nigeria. This is achieved in two stages. First, a structural model of the interaction between exchange rate, budget deficit, inflation, and government revenue and expenditure is constructed. In a floating exchange rate regime, such as the one operational in Kenya, the value of exports and imports have a strong impact on the demand and supply of foreign exchange and thus determine the exchange rate. This is why the exchange rate is referred to as a relative price. Depreciation of a currency makes exports cheaper relative to imports.   Also, markets anticipate future inflation. If they see a policy likely to cause inflation (e.g. cutting interest rates) then they will tend to sell that currency causing it to fall in anticipation of the inflation. How the exchange rate affects inflation. If there is a depreciation in the exchange rate, it is likely to cause inflation to increase. Of course, for the fixed exchange rate to be effective in reducing inflation over a long period of time it will be necessary that the country avoid devaluations. Devaluations come about because the central bank runs persistent balance of payments deficits and is about to run out of foreign exchange reserves.

  The rate of inflation in a country can have a major impact on the value of the country's currency and the rates of foreign exchange it has with the currencies of other nations. However, inflation. Table 2 also reveals relatively more exchange rate depreciation in the higher-inflation African countries, where the nominal effective exchange rate depreciated on average by percent a year during , compared to percent for the countries with more moderate inflation rates. There was little difference between the two groups of.   Aside from factors such as interest rates and inflation, the currency exchange rate is one of the most important determinants of a country's relative level of economic ge rates . As part of the attempt to fill this gap, this study examines the quantitative effects of exchange rate depreciation on budget deficit and inflation in Nigeria. This is achieved in two stages.