TITLE:               

Exchange Rate Fluctuations and Inflation on Economic Development in Nigeria: The Economic, HEART of a Nation

AUTHORS:     

Odoh, Cletus Okwuchukwu, Dr. Edith, Ogoegbunam Onyeanu

DOI:  10.5110/77. 1082               Page:   46-64            Vol: 18    Issue: 10   Year: 2023

ABSTRACT

The peculiarities of these crucial factors, exchange rate fluctuations, inflation, and economic growth in developing economies/nations, particularly Nigeria, keep the relationship between these variables at the forefront of economic discussion. There is little to no literature on Nigeria’s exchange rates, inflation, and economic growth. Because of the current exchange rate instability and Nigeria’s frighteningly high inflation rate, a study of this nature is essential to ascertain the influence of exchange rate fluctuations and inflation on economic growth in Nigeria. This article examined the impact of exchange rate fluctuation on the country’s inflation–growth nexus from 1990 to 2022. Based on the outcome of the bond test, the short-run ARDL model was applied to test all two hypotheses. The study’s results demonstrated that inflation and exchange rate fluctuation harm the nation’s economic growth. The higher the volatility in the exchange rate, the worse the inflationary-growth relationship of the country. The real exchange rate coefficient demonstrates, on the other hand, established a positive relationship between the exchange rate and employment growth rate. Theoretically, while maintaining the influence of all other significant variables constant, a 1% increase in Nigeria’s exchange rate will lead to a 4.77% increase in the employment growth rate. The result supports the menu cost theory of price setting, which states that the exchange rate pass-through effect occurs more quickly with a higher inflation rate. Therefore, to fulfill their commitments under Nigeria’s monetary policy, the monetary authorities should ensure that the adverse effects of exchange rate imbalances on economic growth are handled by suitable measures and with the necessary political will.

Keywords:

HEART of a Nation, exchange rate fluctuation, economic growth, inflation; ARDL model

Received: 16 November 2023

Accepted: 04 December 2023

Published: 12 December 2023