THE INFLOW OF FOREIGN PORTFOLIO INVESTMENT AND THE RESPONSE OF MONETARY POLICY IN NIGERIA
- Abayomi Toyin Onanuga
- Sheriffdeen Adewale Tella
- ( paper pages. 1 - 18 )
Abstract
The study investigated how foreign portfolio investment responds to monetarypolicy indicators and vice-versa in Nigeria. It employed high-frequency data forthe period 2014:01-2016:12 and used the vector error correction (VEC) approachto investigate the inter-relationship among the endogenous series. It found thatthere is a uni-causal relationship between monetary policy indicators and FPI. Thecointegration results affirmed that there exists a long-run relationship between FPIand treasury bill, while VEC estimates suggested that short-run relationship existsbetween FPI and MPR. The impulse response function suggested that inflow of FPIresponds to monetary policy shocks and vice-versa. The variance decompositionresults affirmed that innovations due to monetary policy and FPI constitute sourcesof variations in the fluctuations of these two variables. It was concluded that thereexists a short-run relationship between monetary policy and foreign portfolioinvestment, but that there is no long-run relationship between the two variables. Itwas recommended that monetary policymakers should take into account the patternof inflow of FPI into Nigeria, especially in the short-run when fixing the monetarypolicy rate.
Citation
Abayomi Toyin Onanuga, Sheriffdeen Adewale Tella.
2018.
"THE INFLOW OF FOREIGN PORTFOLIO INVESTMENT AND THE RESPONSE OF MONETARY POLICY IN NIGERIA"
The Nigerian Journal of Economic and Social Studies,
60 (2): 1 - 18.
JEL Classification
F34, E52, C22, C51
