Exchange Rate, Interest Rate and Ricardian Equivalence Hypothesis: Evidence from Nigeria

Chika Felicia Abada


The validity of Ricardian Equivalence Hypothesis (REH) in Nigeria has been tested by bringing into play quarterly data of exchange and interest rates. The study was motivated basically by the need to examine the short and long run dynamics between the variables streaming from exchange and interest rates to government budget deficit and government debt using Autoregressive Distributed Lag (ARDL) bounds technique developed by Pesaran, Shin and Smith. The estimation results from Wald-test confirmed that, government budget deficit and government debt are not equal to zero. Therefore, the null hypothesis of REH holding in Nigerian has been refuted in order to uphold the efficacies of fiscal policy in macroeconomic stabilization. To this effect, it become obvious that Nigerian consumers respect the performance of fiscal policy and treat government debt as net wealth by increasing their consumption once there is a rise in income either via debt or tax cut.

DOI: 10.5901/mjss.2016.v7n5p58

Full Text: PDF

Licenza Creative Commons
This work is licensed under Creative Commons Attribution 3.0 License.

Mediterranean Journal of Social Sciences ISSN 2039-9340(Print) ISSN 2039-2117(Online)

Copyright © MCSER-Mediterranean Center of Social and Educational Research

To make sure that you can receive messages from us, please add the '' domain to your e-mail 'safe list'. If you do not receive e-mail in your 'inbox', check your 'bulk mail' or 'junk mail' folders..