Navigating the Economic Labyrinth: The Minotaur of Exchange Rate in Nigeria’s Maze
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- November 3, 2023
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Oluka, Kingsley Ugochukwu1 & Ugwu, Felix Ikechukwu, PhD2
12Department of Business Management, Enugu State University of Science and Technology
ABSTRACT
The study was carried out to navigate the Economic Labyrinth: The Minotaur of Exchange Rate in Nigeria’s Maze. The specific objectives are as follows, to ascertain the effect of Interest rate on exchange rate in Nigeria, to assess the effect of inflation rate on exchange rate in Nigeria and to examine the effect of money supply on exchange rate in Nigeria. The study used secondary sources of data from Central Bank of Nigeria Statistical bulletin. Ex-post facto research design was also adopted. The study employed Auto Regressive Distributed Lag Model (ARDL). The result revealed that Interest rate has negative and significant effect on real exchange rate in Nigeria. This result confirms the findings (t-statistics is -0.397241 while the probability value is 0.6940). Inflation rate has positive and non-significant effect on real exchange rate in Nigeria. This result confirms the findings (t-statistics is 1.088344 while the probability value is 0.2851). Money supply has negative and significant effect on real exchange rate in Nigeria. This result confirms the findings (t-statics is -0.539063 while the probability value is 0.5938). From the findings the following recommendations were made; The Central Bank of Nigeria needs to formulate monetary policy that will stabilize the Naira against other currency as well as allow such policy to complete their gestation period before subjecting them to change. One of the things that aid exchange rate misalignment is the frequent change of monetary policies, such changes could trigger shock in the fundamentals. Also, the government should stimulate the productive sector of the economy so that the Nigeria economic growth can sufficiently stimulate the appreciation of the Naira. A major policy implication of this result is that concerted effort should be made by policy makers to increase the level of output in Nigeria by improving productivity/supply in order to reduce the prices of goods and services (inflation) so as to boost the growth of the economy. Inflation can only be reduced to the barest minimum by increasing output level (GDP).
Keywords: Navigating the Economic Labyrinth; Macroeconomic Variables; Exchange Rate; Interest Rate; Inflation Rate
Citation: Oluka, K. U & Ugwu, F. I. (2023). Navigating the Economic Labyrinth: The Minotaur of Exchange Rate in Nigeria’s Maze. European Review in Accounting and Finance, 7(4), 1-12. DOI: https://doi.org/10.5281/zenodo.10068460
Copyright: ©2023 The Authors. This is an open-access article distributed under the terms of the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.