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Exchange Rate Depreciation and Inflation in Nigeria (1986–2008)

Keywords: Exchange rate depreciation , inflation rate , ARDL Cointegration

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Abstract:

The research paper examined the impact of exchange rate depreciation on inflation in Nigeria for the period 1986–2008,using Auto Regressive Distributed Lag (ARDL) Cointegration Procedure. The research found that exchange ratedepreciation, money supply and real gross domestic product are the main determinants of inflation in Nigeria, and thatNaira depreciation is positive, and has significant long-run effect on inflation in Nigeria. This implies that exchange ratedepreciation can bring about an increase in inflation rate in Nigeria. The paper also found that inflationary rate in Nigeriahas a lagged cumulative effect. The research paper therefore concludes that although Naira depreciation is relevant inensuring an improvement in the production of exportable commodities, it must not be relied upon as a potent measure forcontrolling inflation in Nigeria. The paper therefore recommends the need for policy-makers to employ exchange ratedepreciation as a measure to compliment other macro-economic policies to stabilize the volatile inflationary rate inNigeria.

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