Abstract:
Testing for market efficiency is a growing era in the exchange rate literature. This development has become even the more necessary especially for many developing countries which adopted exchange rate based reforms. This work set out to find the relative efficiency of the exchange rate market in Nigeria and Ghana with a view to finding out if differences in these could account for the differences in performance of the two countries in the implementation of the structural adjustment programme. The foreign exchange market was summarily found to be efficient in both countries. However, when a full analysis is conducted with the Ghanaian data on other macroeconomics determinants of exchange rate, the Ghanaian foreign exchange market was proven to be inefficient. This implied that there was more executive interference in the management of the Ghanaian foreign exchange rates than in the Nigeria case. Prediction of the values of the exchange rate given the information contained in the 'whole basket of macroeconomics determinants' of exchange rate was far less difficult in Ghana. This could easily account for better macro management of the exchange rate over the sample period and the better performance of policy making in SAP, which relied on the movements of the exchange rate. Such policymaking using the foreign exchange market needed not relied only on the previous values of the exchange rate but also on several other macroeconomics variables to make a projection of the rate of exchange in future. This however, was not applicable to Nigeria given the efficient and unpredictable movements of the exchange rate. There was also analysis of the impacts of monetary variables in the determinant of economic performance in the pre- and post-SAP periods. This aims to investigate the impact of monetary policy instruments in the management of economic growth in the two countries. Such insights are expected to help see the relative weights attributable to monetary instruments as distinct real variables. This, in a way, is supposed to be another examination of the potency of the objectives of SAP and of the macroeconomics instruments used in their realization. The findings are that the monetary policy instruments were not potent in determining overall ouput performance. Whether in the pre- or post-SAP periods, these variables were weak in defining output growth in both countries. As such, it could be concluded that the setting of the objectives of SAP to involve supply side management were quite in order. Besides, most changes in monetary policy instruments were seen to affect output growth negatively. This calls for more caution in the increase of money supply, for instance.
