Examining the Dynamics of Exchange Rate on Inflation in Nigeria

By: Abbas Abdullahi Marafa & Hafsat Hephzibah Ahmed

Pages: 21–39, Volume: 3, Number: 2

Published by: AEFUNAI Journal of Economics, Finance and Development Studies, Alex Ekwueme Federal University, Ndufu-Alike, 8/1/2026, 2026

ISSN (Electronic): 2536-6742

DOI:

Examining the Dynamics of Exchange Rate on Inflation in Nigeria

Abstract:

This study re-examined the dynamics of the exchange rate on inflation in Nigeria using quarterly time series data spanning from 2010Q1 to 2024Q4. The study employed ARDL techniques and the Granger causality test. The result of the ARDL bound test indicates the existence of a long-run relationship among the variables employed in the model. This result suggests that inflation and the explanatory variables move together in the long run. The result of the long-run coefficients of the exchange rate shows a positive and significant relationship with inflation. Similarly, the short-run coefficients of the exchange rate show a positive and significant relationship with inflation. The Granger causality test indicates the existence of a bidirectional causal relationship between the exchange rate and inflation. Based on these findings, the study concludes that the exchange rate has both short-run and long-run effects on inflation in Nigeria over the study period. Based on these findings, it is recommended that the government should focus on exchange rate stabilization policies to achieve price stability and coordinate monetary, fiscal, and exchange rate policies to break the inflation-depreciation cycle.

Keywords: Exchange Rate, Inflation, ARDL, Granger Causality, Quarterly time series, Nigeria