EFFECTIVENESS OF EXCHANGE RATE POLICY ON MACROECONOMIC PERFORMANCE IN NIGERIA (1970-2020)

Abstract

The purpose of this study is to examine the effectiveness of exchange rate policies on macroeconomic variables in Nigeria, specifically, balance of payments, economic growth, and inflation rate, and also to ascertain specifically which one of the exchange rate policies is significantly effective to drive macroeconomic performance in Nigeria (1970-2020). Information was gathered from secondary sources, including the World Bank Indicator (WDI) and the Central Bank of Nigeria (CBN). Real gross domestic product, exchange rate policy, exchange rate, foreign direct investment inflow, money supply, inflation rate, and human capital and importantly, the exchange rate policy was captured using a dummy variable. In order to achieve the three specific objectives, the study employ Ordinary Least Square (OLS) method, Autoregressive Distributed Lag (ARDL), Augmented Dickey-Fuller (ADF), Unit Root test, and F- statistics bound test. Results found that the flexible exchange rate has a negative impact on the balance of payments as well as a negative impact on Nigeria's economic growth, whereas the fixed exchange rate policy has an insignificant negative impact on the balance of payments with a slightly better overall result and a positive impact on Nigeria's economic growth. Therefore, the study recommends the monetary authorities should place greater emphasis on the fixed exchange rate policy than the flexible exchange rate policy due to its overall and longterm impact on macroeconomic performance factors including economic growth and the balance of payments.