An Analysis Of The Impact Of Exchange Rate Policy On Macroeconomic Performances In Nigeria (1986 -2015)

Authors: Oladele D. Aluko Ph.D; Sani B. Sabiu Ph.D
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This paper investigates the causal relationship between exchange rate and a number of macroeconomic variables such as gross domestic product growth rate, inflation rate, Savings, Interest rate, Investment and unemployment in Nigerian post Structural Adjustment Programme (SAP). Annual time series data from 1986 -2015 were used as the research sample period. The data were sourced from the National Bureau of Statistics and Central Bank of Nigeria (CBN). The ADF unit root test was applied to check the stationarity of the variables. The Johansen cointegration test, equation estimation and Granger causality tests were applied. Johansen cointegration result shows that there exists a long-run equilibrium relationship among the variables under consideration. The Granger causality test between the dependent and independent variables shows a unidirectional causality from exchange rate to gross domestic product growth rate, inflation rate, Trade, Interest rate, Investment and BOP. On the whole, the paper has provided empirical evidence that there is a causal relationship between exchange rate and some macroeconomic indicators in Nigerian post SAP period. These indicators on the other hand impact on the determination of exchange rate. Certain policy implications arise from these findings. It demonstrates the need for monetary authorities to learn from past exchange rate management and come up with a monetary policy framework that would ensure stability in the existing exchange rate policy.