ANALYZING THE RELATIONSHIP BETWEEN INTEREST RATE AND EXTERNAL RESERVES IN NIGERIA: A COINTEGRATION APPROACH

Abstract

Nigeria's economy is heavily reliant on the oil industry, making external reserves and interest rates crucial indicators of economic stability and development. This paper examines the long-term relationship between interest rates and external reserves in Nigeria using cointegration analysis. The study finds a significant long-term relationship between the two variables and suggests that external reserves have a causal relationship with interest rates, indicating that external reserves are a crucial determinant of interest rates in Nigeria. The findings have important implications for policymakers in Nigeria, highlighting the importance of maintaining a stable external reserve to ensure economic stability and growth.