An Empirical Investigation of the Real Exchange Rate Impact on Economic Activities: The Case of Nigeria

Abstract

This paper explores the relationship between the real exchange rate and Economic activities in the Nigerian Economy considering the aggregate demand and supply transmission mechanisms. While depreciation of the real exchange rate encourages internal competitiveness of domestic goods and raises export in the former, it increases the cost of production and redistributes income against the poor in the latter.

The empirical result shows that only the real exchange rate and interest rate are not significantly related to GDP though they are rightly signed.

Thus, Nigeria needs a proper monitoring and effective coordination of monetary policy target for a consistent trend in the policy variable movement.