Consumption-Based Interest Rate and the Present-Value Model of the Current Account—Evidence from Nigeria
IMF Working Papers, August 1, 2001
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Bibliographic details
- Authors: Olumuyiwa S Adedeji
- Published: August 1, 2001
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451851656.001
Overview
- Author: Olumuyiwa S Adedeji
- Publication date: August 1, 2001
- Paper type: IMF Working Paper (Working Paper No. 2001/093)
- Core objective: Present a model of current account determination based on the permanent-income hypothesis and derive a present-value relationship among the current account, changes in net output, the exchange rate, and the terms of trade; test implications using data for Nigeria during 1960-97.
- Sample period used for empirical testing: 1960-97
- Pages: 29
Model and Methodology
- Theoretical basis: Permanent-income hypothesis.
- Derived relationship: A present-value relationship linking the current account, changes in net output, the exchange rate, and the terms of trade.
- Key theoretical construct: Consumption-based interest rate incorporated into present-value model of the current account.
- Empirical approach: Testing the implications of the derived present-value relationship using Nigerian data for 1960-97.
Empirical Evidence (Nigeria, 1960-97)
- Data tested: Current account, changes in net output, exchange rate, terms of trade for Nigeria.
- Purpose of tests: Validate the implications of the present-value relationship derived from the permanent-income hypothesis when a consumption-based interest rate is used.
Key Findings
- The paper derives a present-value relationship among the current account, changes in net output, the exchange rate, and the terms of trade.
- The implications of this present-value relationship are empirically tested using Nigerian data spanning 1960-97.
Policy Implications and Relevance
- The model informs understanding of current account determination through a consumption-based interest rate framework grounded in the permanent-income hypothesis.
- Relevance to policy discussions on balance of payments and current account dynamics for Nigeria, considering exchange rate and terms-of-trade effects.