Exchange Rate Unification in Nigeria: Volatility Dynamics and Short-Term Forecasts

Nearly two years after Nigeria’s exchange rate unification policy was introduced, questions remain about its effectiveness. This study uses the Exponential GARCH model to examine: (1) the impact of the policy on exchange rate returns and volatility, (2) whether it has achieved its intended goal of long-term stabilization, and (3) what forecasts reveal about future exchange rate dynamics. Results indicate that while the policy did not significantly affect mean returns, it led to a significant increase in volatility (4.3757, p < 0.05). However, volatility began to subside from Q4 2024, suggesting a market adjustment phase. Forecasts show a continued decline in volatility through mid-2025, implying the policy may be on track toward achieving its long-term goals. The study recommends ongoing monitoring of exchange rate behaviour, complementary short-term measures to manage short-term volatility while allowing the unification policy to mature further, and improved policy communication with market participants to support sustained stability.