EuroEconomica, Vol 35, No 2 (2016)

Abstract

The aim of this study is to investigate the impact of exchange rate fluctuation on economic growth in Nigeria within the context of four profound theories: purchasing power parity; monetary model of exchange rates; the portfolio balance approach; and the Optimal currency area theory. Data was collected from the CBN statistical bulletin in Nigeria from 2003– 2013and the Autoregressive Distributed Lag (ARDL) model was employed to estimate the model. In the model, real GDP (RGDP) was used as the proxy for economic growth while Inflation rate (IF), Exchange rate (EXC), Interest rate (INT) and Money Supply(M2) as proxies for other macroeconomic variables. The empirical results show that exchange rate fluctuation has no effect on economic growth in the long run though a short run relationship exist between the two. Based on these findings, this paper recommends that the Central bank for policy purposes should ensure that stern foreign exchange control policies are put in place in order to help in appropriate determination of the value of the exchange rate. This will in the long run help to strengthen the value of the Naira.