Determinants Of Exchange Rate Fluctuation In Nigeria

• Rilwan Abdulsalam

  Department of General Studies, Federal Polytechnics Wannune, Benue State Nigeria

  Author

• Rilwan Bello

  Department of Economics, Federal College of Education Yola, Adamawa State Nigeria

  Author

• Hafiz Ismail

  Department of Economics, Federal College of Education Yola, Adamawa State Nigeria

  Author

• Habiba Bello

  Department of Economics, Federal College of Education Yola, Adamawa State Nigeria

  Author

• Sadiq Wakil Dalil

  Department of Economics, Federal College of Education Yola, Adamawa State Nigeria

  Author

Exchange rate stability remains a critical macroeconomic objective because exchange rate movements influence inflation, investment, trade competitiveness, and overall economic performance. This study empirically examined the determinants of exchange rate fluctuation in Nigeria using annual time-series data obtained from the Central Bank of Nigeria (CBN) Statistical Bulletin covering the period 1986–2024. The study investigated the effects of gross domestic product (GDP), degree of openness, interest rate, and inflation rate on exchange rate behavior within the framework of the Purchasing Power Parity, Interest Rate Parity, and Balance of Payments theories. The Autoregressive Distributed Lag (ARDL) Bounds Testing approach was adopted due to the mixed order of integration among the variables. The unit root results indicated that exchange rate, GDP, interest rate, and inflation were stationary at level, while degree of openness became stationary at first difference. The ARDL Bounds Test confirmed the existence of a long-run relationship among the variables. The long-run results revealed that GDP and inflation exert positive and significant effects on exchange rate movements, while degree of openness exerts a significant negative effect. Interest rate was found to have a positive but statistically insignificant impact on exchange rate. The Error Correction Model showed a significant adjustment coefficient of -0.472891, indicating that about 47.29 percent of short-run disequilibrium is corrected annually. The study concludes that GDP, inflation, and trade openness are the major determinants of exchange rate dynamics in Nigeria and recommends increased domestic production, export diversification, inflation control, and enhanced trade competitiveness to promote exchange rate stability and sustainable economic growth. 

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