Co-Integration Analysis of Exchange Rate and Inflation Effects on Economic Progress of Nigeria

Abstract

Exchange rate fluctuations and inflation have posed the biggest challenge to Nigeria's economy. We examined the relationships between the US dollar and the Nigerian Naira exchange rate, aswell as the effects on the economic growth of Nigeria (GDP). The Dickey Fuller enhanced test was used to assess the series' stability, and the Johansen co-integration test was appliedtoevaluate if the variables were  co-integrated. ADF results show that the entire variables arestationary at the first difference rather than at the level. Trace statistics show  that in a systemwitha 5% important level, there are at least two co-integrations according to the Johansencointegration test. According to  the longterm co-independence, INFR and EXR have a negativerelationship with GDP, while in the short term the system has corrected its  previous delays toadisbalanced position, with 58.9% quarterly growth, respectively Furthermore, the vector errorcorrection model  indicated GDP for a small-scale period was positively influenced by EXR, whileINFR for a medium-scale period was significantly affected by  INFR.