EFFECT OF FOREIGN EXCHANGE RATE FLUCTUATIONS ON NIGERIAN ECONOMY
Authors: Lawrence UFOEZE, Camilus N. OKUMA, Clem NWAKOBY, Udoka ALAJEKWU
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1Department of Banking and Finance, Chukwuemeka Odumegwu Ojukwu University, Anambra State, Nigeria 2Department of Banking and Finance, Madonna University, Okija Campus, Anambra State, Nigeria 3Department of Banking and Finance, Nnamdi Azikewe University, Anambra State, Nigeria, Tel.: +2347030997856, Email: firstname.lastname@example.org
Abstract This study investigated the effect of exchange rate fluctuations on Nigerian economy. The fixed and floating exchange eras were compared to know the exchange rate system in which the economy has fairly better. The time period covered was 1970 to 2012. The study employed the ordinary least square (OLS) multiple regression technique for the analysis. The coefficient of determination (R2), F-test, t-test, beta and Durbin-Watson were used in the interpretation of the results. The resulted revealed that about 85% of the changes in macroeconomic indicators are explained in the fixed exchange era. In the floating exchange era, 99% was explained while the whole periods has 73% explanatory power, hence the floating exchange era (1986 to date) is more effective in explaining economic trends in Nigeria. Also, exchange rate has significant positive effect on GDP during the fixed exchange rate era and negative effect during the eras floating and all-time; inflation has insignificant negative effect on GDP during the fixed exchange era; significant effect in floating era and significant negative effect in the all-time period; money supply has insignificant negative effect on GDP during the fixed exchange era; and significant positive effect during the floating and all-time period; and oil revenue has significant positive effect on the GDP in all the exchange rate regimes (floating, fixed and all-time) in Nigeria. The study thus concludes that exchange rate movement is a good indicator for monitoring Nigerian economic growth. So far, exchange rate has always been a key economic indicator for Nigeria. The floating exchange period has outperformed the fixed exchange rate in terms of contribution inflation, money supply and oil revenue to economic growth. This indicates that the floating exchange rate has been a better economic regime for sustainable economic growth in Nigeria..