Exchange Rate, Monetary Policy and Economic Performance in an Oil Dependent Economy

Abstract

Amidst the seemingly conflicting results among researchers on the impact the duo of exchange rate and monetary policy has on the economy, an attempt was made to examine the impact of exchange rate and monetary policy on economic growth in Nigeria for the period spanning 1986 and 2020. To this end, a model was drawn and analysed using co-integration and error correction mechanism. Having conducted descriptive analysis, stationarity test and co-integration test, the estimates from ECM and long run shows that exchange rate negatively impact on economic growth while monetary policy positively impact on economic growth. The structural stability of the model was tested and affirmed using cumulative sum of recursive residuals-CUSUM. In the light of the empirical findings, it was recommended that concerted effort should be made to stabilize exchange rate for it to be positively responsive to growth and that for a more efficient and effective management of the economy, monetary authority should operate without undue influence from political office holders.