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Impact of Exchange Rate Volatility on Inflation in Nigeria

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  • Musa, Nuhu

Abstract

This study examined the effect of exchange rate volatility on inflation in Nigeria using annual time series data covering the period 1986-2019. To achieve this objective, the study employed the generalized autoregressive conditional heteroskedasticity (GARCH) and vector error correction model (VECM) to ascertain the long-run impact of exchange rate volatility on inflation . The study used consumer price index as a proxy for inflation being the dependent variable while nominal exchange rate (NER), money supply (MS) import (IMP) and export (EPT) were used as the independent variables. The results of stationarity test indicated that the variables have mixed order of integration and bounds test for co-integration confirmed the existence of a long-run relationship among the variables. Findings showed that money supply (MS) and nominal exchange rate(NER) had positive and significant effect on consumer price index, meaning that inflation in Nigeria is caused by exchange rate fluctuations as well as increase in money supply. Based on the findings, the study recommended that growth of money supply should be controlled by the central bank in order to reduce inflation to the barest minimum.

Suggested Citation

  • Musa, Nuhu, 2021. "Impact of Exchange Rate Volatility on Inflation in Nigeria," Journal of Contemporary Research in Business, Economics and Finance, Learning Gate, vol. 3(1), pages 26-38.
    • Handle: RePEc:ajp:jcrbef:v:3:y:2021:i:1:p:26-38:id:99
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    File URL: https://learning-gate.com/index.php/2641-0265/article/view/99/55
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    Citations

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    Cited by:

    1. Rotimi Ayoade Ogunjumo & Nuhu Musa & Ibrahim Adama & Silas Idoko Abu & Hitlar Inedu & Salami Hamzat & Stephen Adesina Ibitowa, 2024. "Nigeria’s Volatile Oil Revenue: Is There a Cause for Concern?," International Journal of Energy Economics and Policy, Econjournals, vol. 14(2), pages 299-303, March.
    2. Ali Zeb & Niu Shuhai & Obaid Ullah, 2024. "Inflationary dynamics under fiscal and monetary asymmetries: a nonlinear investigation in Pakistan," SN Business & Economics, Springer, vol. 4(12), pages 1-30, December.

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