Factors Determining Exchange Rate Volatility in Nigeria

Abstract

This study investigated the factors affecting the volatility of the Nigerian exchange rate between 1986 and 2020, and source from the Central Bank of Nigeria Statistical Bulletin, World Development Indicators, National Bureau of Statistics. Hence, several estimation techniques were employed ranging from the unit root testing for stationarity, descriptive analysis, regression analysis, covariance and correlation, ARCH model to Granger causality analysis.  The study reported that RESID (-1)^2 which is also known as the ARCH effect has the coefficient value of 0.686699, with the p-value of 0.00551, representing that the exchange rate was volatile since the GARCH(-1) being the internal cause of the volatility of exchange rate has the coefficient value of 0.405101 with the p-value of 0.0499 representing that exchange rate during the period has GARCH affect. It was concluded that GDP was positively insignificant to influence the exchange rate movement, the consumer price index was negatively insignificant to influence exchange rate variation, the money supply was positively significant to influence exchange rate variation, and monetary policy rate was positively significant to influence exchange rate variation during the study period.