Effect of exchange rate fluctuation on external reserve in Nigeria

Abstract

This e study examines the effect of Exchange rate fluctuation on the external reserve of Nigeria using time series data from 2001-2021. The data used are secondary which were obtained from the Central Bank of Nigeria Statistical Bulletin and the data gathered were analysed using e-view12. The study employed Ordinary Least Squares (OLS) to analyze the data. The study was given that the reported p-value of 0.9319 was greater than the critical level of significance at 0.05. This indicates that the model is free from the problem of heteroscedasticity. The results show that there is a negative relationship between external reserves and inflation rate, interest rate, and public debt. Findings however revealed that all independent variables possess negative relationships with external reserves, the relationship is significant in relation to external reserves except public debt which is insignificant. The research therefore recommends that strict foreign exchange control policies should be put in place to help in the proper determination of the value of the exchange rate. This will thus; in the long run, help to strengthen the value of the Naira and the government's need to induce the foreign exchange rate by encouraging positive economic reforms that will reduce the unfavorable effect of exchange rate fluctuation on external reserve.