Real exchange rate misalignment and economic performance in Nigeria

Abstract

The objective of the study had been to investigate the impact of real exchange rate misalignment on economic growth in Nigeria. This paper adopted purchasing power parity index, the parallel market index and the model-based index of exchange rate misalignment to investigate the effects of real exchange rate misalignment on economic performance in Nigeria. The results revealed that only the index of real rate of exchange purchasing power parity was positively related to per capita GDP. Parallel market index and model-based index were inversely related to per capita GDP. The explanatory powers of the estimated results were good with high speed of adjustments indicating that the variables were cointegrated. The paper recommends that improving the terms of trade and per capita income will ameliorates exchange rate misalignment.

KEYWORDS: Exchange rate misalignment,co-integration and economic growth.