Effect of Exchange Rate Fluctuations on Inflation Rate in the Nigerian Economy

Atsanan Angela Ngunan

Abstract


The study examined the effect of exchange rate fluctuation on inflation rate in Nigeria. The study covered the period of deregulated economy from 1986 till 2015. Exchange rate fluctuation was represented by nominal exchange rate and supported with control variables which includes interest rate, money supply, imports and Gross Domestic Product.(GDP) The Ordinary Least Square(OLS) was used for data analysis and the result has shown that interest rate is significant and positively related to inflation rate at about 1% level this indicates that increase in interest rate can cause inflation The study also has shown That exchange rate and other macroeconomic variables including interest rate, money supply, imports and GDP are not the only factors that have impact on inflation in Nigeria. This suggests that macroeconomic variables are not the major causes of inflation rate in Nigeria. Social and political issues such as unrests, consumer confidence, and political landscape and so on can trigger inflation. The study therefore recommended that despite the use of monetary and fiscal policies on controlling inflation and unemployment, governments should pursue diplomatic missions aimed at creating good image for the country and public confidence in the citizenry and monetary authorities should ensure that interest rates measures are put on check


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