Impact of Exchange Rate Volatility on Selected Macroeconomic Variables in Nigeria

Abstract

Examining the combined impact of exchange rate
volatility on economic growth, inflation, and
unemployment provides a more comprehensive
understanding of their interconnections and overall effects
on an economy. Specifically, this study examined the effect
of exchange rate volatility on economic growth, to
appraise the effect of exchange rate volatility on inflation,
and to assess the influence of exchange rate volatility on
unemployment rate in Nigeria from 1981 to 2021. The
study employed Feasible Generalized Least Square
(FGLS) method as the analytical technique. The findings
of this study revealed that exchange rate volatility has a
significant negative impact on economic growth,
indicating that it retards growth. Additionally, exchange
rate volatility has a significant positive impact on
inflation, suggesting that it escalates inflationary
pressures. Furthermore, exchange rate volatility has a
significant positive impact on unemployment, indicating
that it contributes to higher unemployment rates. However,
the study concluded that exchange rate volatility has a
significant negative impact on economic growth in
Nigeria. Exchange rate volatility has a significant positive
impact on inflation and unemployment in Nigeria. In light
of these findings, it is recommended that policymakers in
Nigeria should focus on implementing measures to reduce
exchange rate volatility, as it negatively affects economic
growth, increases inflationary pressures, and contributes
to unemployment. These measures may include enhancing
exchange rate stability through appropriate monetary and
fiscal policies, promoting export diversification, and
attracting foreign direct investment to improve exchange
rate management and stability.