Exchange Rate Instability and Economic Management of an Emerging African Economy: A Case for Nigeria

Abstract

This paper examines the movement of exchange rate and macroeconomic management in an emerging African economy with particular reference to Nigeria. Instability and variations have been the basic features of exchange rate in Nigeria and some other countries. The question is to ascertain the impact of instability of exchange rate on the performance of selected sectors of the macroeconomy. The ordinary least square (OLS) technique was adopted using times series data on exchange rate, Economic growth (GDP) import, export and inflation. Exchange rate instability is measured by three years moving average of standard deviation of the real exchange rate. The result of analysis is respectable. Economic growth, import and inflation have relationship with exchange rate and the instability of exchange rate impacts on these variables differently. The study advocates that a dynamic exchange rate policy should be put in place so as to enhance export promotion and greater productivity by the manufacturing/industrial sector thereby attracting more revenue into the export sector. This subsequently leads to sustained economic growth and stability.