Exchange Market Pressure, and the Magnitude of Exchange Market Intervention Index in Nigeria

Abstract

Using monthly data from January 2004 to December 2022 and the two-stage least squares (2SLS) method to estimate the money demand and price equation, this study constructs the exchange market pressure (EMP) and the intervention index for Nigeria by utilising the (Weymark, 1995) model. Findings indicate the value of the Naira is mostly under pressure to depreciate. Notwithstanding the monetary authority's intervention to pressures of appreciation or depreciation, the intervention index indicates absorption of the pressure by the exchange rate (EXR), which is in tandem with floating regime. Hence, the study agrees with the IMF's (2022) Exchange rate Arrangement for as well as Reinhart & Rogoff's (2004) exchange rate analysis for Nigeria. The analysis also revealed the anticipated (EXR) is more erratic than the actual exchange rate.