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EFFECT OF EXCHANGE RATE VOLATILITY ON MACROECONOMIC PERFORMANCE IN NIGERIA
Abstract
This study examines the effect of exchange rate volatility on macroeconomic performance in Nigeria from 1986 to 2010. The model formulated depicts Real GDP as the dependent variable while Exchange Rate (EXR), Balance of Payment (BOP) and Oil Revenue (OREV) are proxied as independent variables. It employs the Ordinary Least Squared (OLS) and Johansen co-integration estimation techniques to test for the short and long runs effects respectively. The ADF test reveals that all variables are stationary. OLS results show that OREV and EXR are positively related while BOP is negatively related to GDP. Further findings reveal that oil revenue and balance of payment exert negative effects while exchange rate volatility contributes positively to GDP in the long run. It recommends that graft should be tackled frontally in the oil sector to ensure better utilisation of oil revenue, more attention be paid to Agriculture and Solid mineral sectors and that the monetary authorities should pursue policies that would curb inflation and ensure stability of exchange rate.
Keywords: Exchange Rate,Balance of Payment (BOP), Gross Domestic Product (GDP), Oil Revenue (OREV), Macroeconomic Performance.