Would Exchange Rate Converge in Nigeria?A Stochastic-Markov Transition Process Analysis

Abstract

This paper examined if the Nigerian exchange rate would converge in the long run thereby looking at the exchange rate switches or transition from a particular state to another. This was done via the iterations of the Chapman-Kolmogorov equations of the Markov model, It was discovered that convergence occurred in the long run as shown by our markov model. It suggests that appreciation and depreciation of the naira via dollar rate would be stable as indicated by the probability values.

Keywords: Markov, Transition probabilities, Exchange rate, Chapman-Kolmogorov