Re-examining Exchange Rate Regimes and Inflation Nexus: An ARDL Analysis for Nigerian Case
Re-examining Exchange Rate Regimes and Inflation Nexus: An ARDL Analysis for Nigerian Case

Summary/Abstract: This paper seeks to re-examine the effect of exchange rate regimes on inflation in Nigeria.This is pertinent because exchange rate has remained devastated in Nigeria while the problem of high inflation lingers. Contrary to most studies on Nigeria, we tested the stability of our inflation model. We used the Autoregressive Distributed Lag (ARDL) approach for our analysis. The result shows that the past one year value of exchange rate has a negative and significant impact on the current inflation rate. Inflation rate increased more during the fixed exchange regime compared to the floating exchange rate regime. During the floating exchange rate regime, as the exchange rate increases, the inflation rate decreases and vice versa. The implication is that the floating exchange rate regime policy is preferable for combating increases in inflation rate compared to the fixed exchange rate. In addition, the lags of money supply have a direct relationship with inflation rate. The past two years value of interest rate also has a direct relationship with inflation rate. It is necessary that future studies on Nigeria consider wider spectrums of exchange rate regimes than ours.

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