Exchange rate variation and inflation in Nigeria’s economy
Chapter One
Objective of the study
The objective of the study are;
- To ascertain the relationship between exchange rate variation and inflation in Nigeria economy
- To ascertain the role of exchange rate on Nigeria economy
- To ascertain the main source of economy stability
CHAPTER TWO
REVIEW OF RELATED LITERATURE
INTRODUCTION
Despite the saturation of literatures with studies on exchange rate volatility, the lists are still very scanty with respect to developing countries. Bakoulas, et al., (2002) examined the impact of exchange rate fluctuations on the volume and variability of trade flows and they concluded that exchange rate volatility discourages expansion of volume of trade thereby reducing its benefits. Eichengreen and Lablang, (2003) carried out a research on twelve countries over a period of 120 years and found strong inverse relationship between exchange rate stability and economic growth. They concluded that the results of each estimates strongly depend on time period and the sample. Schnabel (2007) identified robust evidence through panel estimation that the exchange rate stability is associated with more growth in the European monetary unit (EMU) periphery. The evidence according to him is strong for emerging Europe which has moved to more stable environment. David et. al., (2010) examined the effects of exchange rate fluctuations on the Nigerian manufacturing industries. They employed a multiple econometric tools which revealed a negative relationship between exchange rate volatility and the manufacturing performance. Jin (2008) carried out a comparative study of exchange rate stability and volatility and found out that the appreciation of the exchange rate increases the gross domestic product (GDP) in Russia while it reduces the gross domestic product (GDP) in Japan and China. Razazadekasalani et al., (2011) identified in Iran that during stagnation and low price period that the depreciation of currency have positive and significant effect on real GDP while depreciation of currency have significant effects on real GDP in high price period. Aliyu (2011) found out that appreciation of exchange rate exerts positive influence on real economic growth in Nigeria. Carrera and Vuletin (2003) seek to analyze the relationship between exchange rate regimes and short term volatility of the effective real exchange rate. They tried to set out the relative importance of these links specifically by analyzing the exchange rate regimen influence on real exchange rate (RER) volatility using a dynamic panel date analysis. A sample of 92 countries for the period 1980-1999 was considered. The study revealed that other variables influences real exchange rate (RER) volatility and it also analyzed the persistence of shocks in real exchange rate (RER). The study further found evidence of more openness, acceleration in per capita Gross Domestic Product (GPD) growth, reduction and volatility. Evidence from the study also supports the view that the analysis of the dynamics of the exchange rate regime needs to differentiate between developing and developed countries. Benita and Lauterbach (2007) studied the daily volatility of exchange rate between the United States of America dollar and 43 other currencies in 1990-2001. This study used several macroeconomic variables to proxy for the domestic economy uncertainty, wealth and openness to international markets as controls in the analysis.
CHAPTER THREE
RESEARCH METHODOLOGY
Research design
The researcher used descriptive research survey design in building up this project work the choice of this research design was considered appropriate because of its advantages of identifying attributes of a large population from a group of individuals. The design was suitable for the study as the study sought to exchange rate variation and inflation in Nigeria economy
Sources of data collection
Data were collected from two main sources namely:
(i)Primary source and
(ii)Secondary source
Primary source:
These are materials of statistical investigation which were collected by the research for a particular purpose. They can be obtained through a survey, observation questionnaire or as experiment; the researcher has adopted the questionnaire method for this study.
Secondary source:
These are data from textbook Journal handset etc. they arise as byproducts of the same other purposes. Example administration, various other unpublished works and write ups were also used.
Population of the study
Population of a study is a group of persons or aggregate items, things the researcher is interested in getting information on exchange rate variation and inflation in Nigeria economy. 200 staff of CBN was selected randomly by the researcher as the population of the study.
CHAPTER FOUR
PRESENTATION ANALYSIS INTERPRETATION OF DATA
Introduction
Efforts will be made at this stage to present, analyze and interpret the data collected during the field survey. This presentation will be based on the responses from the completed questionnaires. The result of this exercise will be summarized in tabular forms for easy references and analysis. It will also show answers to questions relating to the research questions for this research study. The researcher employed simple percentage in the analysis.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
Introduction
It is important to ascertain that the objective of this study was to ascertain exchange rate variation and inflation in Nigeria economy
In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges of exchange rate variation and inflation in Nigeria economy
Summary
This study was exchange rate variation and inflation in Nigeria economy. Three objectives were raised which included; To ascertain the relationship between exchange rate variation and inflation in Nigeria economy, to ascertain the role of exchange rate on Nigeria economy and to ascertain the main source of economy stability. In line with these objectives, two research hypotheses were formulated and two null hypotheses were posited. The total population for the study is 200 staff of CBN in Lagos state. The researcher used questionnaires as the instrument for the data collection. Descriptive Survey research design was adopted for this study. A total of 133 respondents made accountants, human resource managers, senior staff and junior staff was used for the study. The data collected were presented in tables and analyzed using simple percentages and frequencies
Conclusion
There are so many policy implications that arose from this study. Certain among them are that exchange rate volatility and inflation affects both the economic growth (GDP), the level of import and export in the Nigeria macroeconomic environment. It demonstrates the need for a monetary policy framework that complements the already existing policy. On the whole, this study provided an empirical estimate of the relationship between the exchange rate, inflation and economic growth. The empirical results show that there is a direct and positive relationship between inflation, exchange rate, import and export as well as the gross domestic product in Nigeria. This is because in view of exchange rate variations, export and import of goods and services will be associated with inflation as the volatility leads to upward and downward trend in prices. In the long run, the exchange rate and the gross domestic product may drift apart, but in the short run, their relationship is strong and direct. The study maintained that in view of the adverse implication of inflation on the economy, stability of exchange rate should be pursued vigorously so as to cub the unprecedented and adverse effect of inflation in the overall economy.
Recommendation
Having reviewed the impact of exchange rate variation and inflation on the economic growth of Nigeria, the researcher would like to recommend based on the findings that there is need to improve on the existing exchange rate management framework and structures in Nigeria. This can influence the level of economic growth, but only on the context of the broad economic reform involving complementary monetary policy. To this end, the government’s monetary policies and regimes should address these incessant and recurrent issues so that the benefit associated with exchange rate stability and inflation rate reduction can be harnessed in the Nigerian economy. The study therefore contends that while high rate of inflation and inconsistent exchange rates is detrimental to economic growth, moderate and stable inflation rate supplements returns to savers, enhances investment and therefore economic growth of a country. Base on strength of our findings, the researcher submits that macroeconomic policies aimed at enhancing sustainable economic development should not over concentrate at fighting inflation but should on other area of economic development such as factor input productivity and human capital development.
References
- Akpokodje, G. (2009). Exchange Rate Volatility and External Trade: The Experience of Selected African Courtiers. In Adeola Adenikinju, Dipo Busari and Sam Olofin (ed.). Applied Econometrics and Macroeconomic Modeling in Nigeria.
- Aliyu, S.U.R (2009a). Exchange Rate Volatility and Export Trade in Nigeria: An Empirical Investigation. MPRA Paper No. 1349. Retrieved from http://mpra.ub.unimuenchen.de/13490/pdf.
- Aliyu, S.U.R (2009b). Impact of Oil Price Shock and Exchange Rate Volatility on Macroeconomic Growth in Nigeria: An Empirical Investigation. MPRA Paper No.16319. Retrieved From http://mpra.ub.unimuenchen.de/16319/pdf.
- Aliyu, S.U.R (2010). Exchange Rate Pass – Through in Nigeria: Evidence from a Vector Error Correction Modeling. Conference Paper Presented in the University of Oxford. Retrieved from http://www.csae.ox.ac.uk/conference/2010-EDIA/papers/012-Aliyu.pdf.
- Aliyu, S.U.R (2011). Impact of Oil Price Shock and Exchange Rate Volatility on Macroeconomic Growth in Nigeria: An Empirical Investigation. Research Journal of International Studies. Issue 11.
- Azeez, B.A., Kolapo, F.T. and Ajayi, L.B. (2012). Effect of Exchange Rate Volatility on macroeconomic performance in Nigeria. Interdisciplinary Journal of Contemporary Research in Business. (1):149-155.
- Babatunde, W.A. and Akinwade, A.A. (2010). Exchange Rate Volatility in Nigeria: Consistency, Persistency and Severity Analysis. Central Bank of Nigeria Journal Applied Statistics. 2(2).