Foreign Exchange Management and Selected Macroeconomic Performance Nexus Evidence From Nigeria

Abstract

The objective of economic stability is fundamental to relative wellbeing of any country. Therefore, exchange rate management is key to fueling growth potentials and relative macroeconomic stability. The study empirically examined the exchange rate management and selected macroeconomic nexus in Nigeria from 1981Q1 to 2021Q4. The technique of generalized auto regressive conditional heteroscedasticity GARCH (1,1) was employed to model the dependent variable of quarterly nominal effective exchange rate( QNEER) on the explanatory variables : quarterly external reserves(QEXRES);quarterly gross domestic product (QGDP) ,and Dummy of effective exchange rate policy (DUMEXPO). The research output showed exchange rate depreciation in Nigeria exhibited a statistically significant inverse relationship with external reserves and gross domestic product during the review period. Whereas, test of exchange rate management policy effectiveness showed a relatively weak policy thrust are implemented to stabilized exchange disequilibrium. The study however, recommended for a consistently well recalibration of exchange policy as well as monetary policy intervention strategies so as to restore convergence, attract capital inflow and macroeconomic equilibrium position. Keywords: Exchange rate management, Sterilization, Pass-through, Nominal exchange rate.