Macroeconomic Variables and Exchange Rate Dynamics in Nigeria

Abstract

This study investigates the potency of macroeconomic variables in influencing exchange rate behaviour in Nigeria from 1980 to 2014. The study tested the impact of balance of payment, rate of inflation, current account balance, gross domestic product, total imports and exports on exchange rate in Nigeria. The relationship between the exchange rate policies and the selected macroeconomic variables were determined using correlation coefficients, coefficient of determination, ANOVA and f-statistic. It was discovered among other things that inflation rates, current account balance and balance of payment in Nigeria had weak positive association with exchange rate movement. Imports, exports and gross domestic products had strong positive association with exchange rate variations. The study also revealed that balance of payment, current account balance, total exports and gross domestic product significantly influenced exchange rate, while, exchange rate variations does not depend on the rate of inflation and total imports in Nigeria. The study recommends that there should be proper monitoring and regulation of Nigeria's foreign exchange markets. There should be more independence and autonomy in the design and implementation of macroeconomic policies by the CBN. In order to effectively pursue stable exchange rate policy, Nigeria must initially address a number of institutional, structural, and operational issues and ensure fiscal discipline.