Exchange Rate Stability and Trade Performance in Nigeria

The study evaluated exchange rate stability and trade performance in Nigeria. On the intellectual foundation of the monetary approach to exchange rate determination, a model, exchange rate (EXRt) as a function of inflation (INFt), external reserve (EXVt), and trade balance (TDBt), while interest rate (INTt) is a control variable, was specified. Data on the variables were obtained from the Central Bank of Nigeria (CBN) Statistical Bulletin. Following the unit root test, the Toda-Yamamoto Granger Causality or Block Exogeneity Wald was carried out. The results showed that inflation, trade balance, and external reserves are not key determinants of exchange rate fluctuations in Nigeria. The findings have implications for the heavy dependence on oil exports, which makes the exchange rate more responsive to fluctuations in global crude oil prices than to domestic inflation or trade balances. The study recommended that policymakers consider alternative determinants of exchange rate stability beyond inflation, trade balance, and external reserves in exchange rate management in Nigeria.