Trade shocks and real effective exchange rates dynamics in Nigeria

This paper models the relationship between trade shocks and real effective exchange rates (REER) for Nigeria using monthly data from January 2010 to December 2021. The contributions of this paper are twofold: (i) We use the Pesaran et al.'s (J Appl Econom 16(3):289-326, 2001) Linear (Symmetric) as well as Shin et al.'s (Festschrift in honor of Peter Schmidt: Econometric Methods and Applications, Springer, 2014) Nonlinear (Asymmetric) ARDL, (ii) We additionally account for structural breaks in regression models using the Bai and Perron (J Appl Econom 18(1):1-22, 2003) test, which allows for numerous structural alterations. Our research yielded the following conclusions. There is evidence of both short-run and long-run asymmetries. Second, terms of trade improvement led to an appreciation of the local currency in the long run. Third, a degradation in terms of trade has no discernible impact on Nigeria's real effective exchange rate. Finally, ignoring structural fractures and asymmetries will result in significant prejudices and erroneous findings.