An Observational Inquire About Trade Rate Instability and Genuine Net Household Items in Nigeria

Abstract

Over the years, exchange rate volatility has sparked a lot of controversy among academics and economists, and many empirical studies have been conducted to explain its association with other macroeconomic indicators including real GDP. As a result, this study conducted a thorough empirical assessment to determine the relationship between exchange rate volatility and Nigeria's real GDP. While exchange rate volatility shocks to real GDP are mostly negative and create short-term divergence from equilibrium, the misalignments tend to resolve slowly, with unpleasant repercussions in the near run while economic actors recalibrate their consumption and investment choices. About three quarters of shocks to the real GDP are self-driven, and the remaining one quarter is attributed to variables such as exports, exchange rate volatility and inflation. Extreme levels of volatility are found to be detrimental to economic growth. However, this is only up to a point as growth-enhancing effect can also emanate from innovation, and more efficient resource allocation. The study recommends that the foreign exchange management policies must concern themselves with both foreign sector and domestic balance of the economy. This can be achieved if the government gives more attention on policies that will affect the accounts in balance of payment