The Macroeconomic Determinants of Exchange Rate Volatility and the Impact of Currency Volatility on the Performance of the Nigerian Economy.

This article investigates the determinants of exchange rate volatility in Nigeria and its effects on the country’s macroeconomic performance using quarterly data from 1986 to 2023. Employing autoregressive conditional heteroscedasticity (ARCH), non-linear generalized ARCH (EGARCH), and a novel dynamic autoregressive distributed lag (ARDL) model, the study finds that monetary policy rate, average lending rate, oil prices, government expenditure, and financial development significantly influence exchange rate volatility. Exchange rate volatility negatively impacts real GDP and the current account balance while positively affecting inflation in Nigeria. The study recommends that Nigerian monetary authorities implement policies to stabilize and limit exchange rate fluctuations to enhance economic predictability and control inflation, given Nigeria’s import-dependent economy and reliance on oil exports.