Acta Universitatis Danubius. Œconomica, Vol 15, No 4 (2019)

Impact of Monetary Policy on Exchange Rate in Nigeria: Bound Test and ARDL Approach

Timothy Ayomitunde Aderemi, Stephen Akinwuyi Akinwande, Henry Omotayo Olayemi, Michael Abayomi Omogboye


The aim of this study is to examine the relationship between monetary policy and exchange rate in Nigeria. The results of past empirical studies have not shown a clear direction about the nature of relationship between these variables in the country and these studies have failed to utilize the methodology in this work, which has created a gap in the literature. Data was collected from the Central Bank of Nigeria Statistical Bulletin from 1990– 2016 and various diagnostic tests such as Unit Roots and Bound Tests were carried out. Consequently, ARDL model was utilized to address the objective of this study. It was discovered in this study that credit reserve requirement and Treasury bill rate have a negative relationship with exchange rate. However, monetary policy rate and broad money supply have a positive relationship with exchange rate in the country. Furthermore, due to these important findings, this paper makes the following vital policy recommendations for the monetary authorities, policy makers, financial institutions regulators and future researchers.  Due to the high volatility in exchange rate in Nigeria currently, the monetary authorities should increase the credit reserve requirement of the commercial banks. Also, the Central bank should increase that rate at which it sells Treasury bill to the commercial banks. The multiplier effect of this policy will reduce the level of high powered money and consequently stabilize the exchange rate


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