Examining the impact of crypto currencies on macroeconomic variables in Nigeria

Abstract

This study employs a Vector Autoregression Model (VAR) and a Quantile Regression Technique to analyze the relationship between bitcoin price and  major macroeconomic variables in Nigeria. The results from the multivariate VAR and the generated impulse response and variance decomposition  indicate no strong statistically significant response of interest rate, inflation, and exchange rate to changes in bitcoin price. However, the study finds a  positive relationship between the stock market index and money supply with bitcoin price. From the estimated Quantile regression technique, results  indicate that the price of the prime cryptocurrency bitcoin has a positive relationship with money supply and exchange rate across all quantiles. Results  also indicate the positive relationship between bitcoin and the rate of inflation at high quantiles. Furthermore, results indicate the importance of  cryptocurrency in explaining interest rates in the country at only the low and high quantiles. The study concludes that crypto currencies have implications  for macroeconomic variables such as exchange rate, money supply, interest rate and inflation in the country. As a result, the study  recommends the need for regulatory clarity in the country to encapsulate envisaged impact on macroeconomic variables,   so that Nigeria can reap the potential benefits from the novel asset class.