Short‐run and long‐run determinants of exchange rate fluctuations: A tale of the Dollar and the Naira

Olaniyi Evans

MPRA Paper from University Library of Munich, Germany

Abstract: The study provides evidence on the effects of changes in oil price, inflation, interest rate, budget balance, economic growth, external debt, domestic investment, and current account balance on exchange rate fluctuations in using the ARDL approach for the period 1970-2015 for the case of the Naira and Dollar. The study shows that changes in oil price, inflation, the current account and domestic investment have significant effects on exchange rate fluctuations both in the short and long run. Changes in external debt has significant effects on exchange rate fluctuations only in the long run. Changes in interest rate, budget balance and economic growth have significant effects on exchange rate only in the short run. In other words, a significant proportion of the high volatility of exchange rate in Nigeria is as a result of changes in oil price, inflation, interest rate, budget balance, economic growth, external debt, domestic investment, and current account balance. The logical conclusion is that in order to stabilize exchange rate in Nigeria, measures should be aimed at diversifying the economy, improving the current account position as well as reducing inflation.

Keywords: Naira-Dollar exchange rate fluctuations; Oil Price; Debt; Inflation; Interest; Growth; Investment; Budget; Current Account; ARDL (search for similar items in EconPapers)
JEL-codes: F4 F41 M2 M21 (search for similar items in EconPapers)
Date: 2025
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