SUSTAINABLE LEVEL OF PARALLEL CURRENCY MARKET PREMIUM FOR SELECTED MACROECONOMIC INDICATORS IN NIGERIA
Musbau Olaniyan Fatai
Department of Economics, Obafemi Awolowo University, Ile-Ife, Nigeria.
Unlike previous studies, this study concentrates on the level effects of the Parallel Currency Market Premium (PCMP) for macroeconomic variables which has largely been neglected in the empirical literature in Nigeria. It investigates the sustainable level of PCMP and macroeconomic variables in Nigeria. Annual secondary data covering the period 1986-2015 were obtained from the Central Bank of Nigeria (CBN) Statistical Bulletins and World Bank Development Indicators (WDI). Data collected were analysed using the Threshold Model taking after the work of Hansen (1999) with modification in relating PCMP and macroeconomic variables implicitly. Results, based on the threshold regression of sustainable levels of the PCMP for Inflation and interest rate variables in Nigeria indicated that PCMP has a threshold value of 35% for inflation rate and 23% for interest rate in Nigeria respectively. That is, any threshold level above this sustainable level, inflation and interest rate will be affected negatively in Nigeria. The results also indicated that no PCMP threshold level were established for the growth rate of GDP in Nigeria. This implies that there is no direct relationship between PCMP and growth rate of GDP in Nigeria. The paper concludes that, the best approach to constraints to the effective performance of the macroeconomic fundamentals and ensure crucial attainment of sustainable growth in Nigeria need to be eliminated through further easing of foreign exchange rationing gradually in the official market and consequently reducing/eliminating the PCMP.
Keywords: PCMP, Macroeconomic fundamentals, sustainable level, Threshold.