Acta Universitatis Danubius. Œconomica, Vol 13, No 6 (2017)

Abstract

Exchange rate has remained devastated in Nigeria while the problem of high inflation lingers. Therefore, this paper re-examines the effect of exchange rate regimes on inflation in the country. We used the Autoregressive Distributed Lag (ARDL) approach for our analysis. Contrary to most studies on Nigeria, we tested the stability of our inflation model. The past one year value of exchange rate has a negative and significant impact on the current inflation rate. Inflation rate increased more during the fixed exchange regime compared to the floating exchange rate regime. During the floating exchange rate regime, as the exchange rate increases, the inflation rate decreases and vice versa. This suggest that the floating exchange rate regime policy is preferable for combating increases in inflation rate compared to the fixed exchange rate. The lags of money supply have a direct relationship with inflation rate. The past two years value of interest rate also has a direct relationship with inflation rate. It is imperative that future studies on Nigeria consider wider spectrums of exchange rate regimes than ours.