Fiscal Policy and Exchange Rate Movement in Nigeria

• Main Author: Philip Ifeakachukwu Nwosa
• Format: Article
• Language: English
• Published: Danubius University 2017-06-01
• Series: Acta Universitatis Danubius: Oeconomica
• Subjects: revenue; expenditure; debt; exchange rate
• Online Access: http://journals.univ-danubius.ro/index.php/oeconomica/article/view/3958/4079

Issues on exchange rate movement have continued to generate concern among economists given its implication on the macroeconomic variables – inflation, imports, domestic interest rate and investment among others. Although studies have examined the determinants of exchange rate movement, there is paucity of knowledge on the relationship between fiscal policy and exchange rate movement. Also, both theoretical and empirical literatures on fiscal policy and exchange rate movement were inconclusive. Therefore, this study examines the relationship between fiscal policy and exchange rate movement in Nigeria for the period 1980 to 2015. The study employed the Ordinary Least Square (OLS) and the regression estimate showed that fiscal policy variables were statistically significant in influencing exchange rate in Nigeria. This suggests that fiscal policy variables are significant determinants of exchange rate movement in Nigeria. Based on the findings, it was recommended that there is the need for prudent management of revenue, expenditure and debt in reducing exchange rate depreciation and ensuring stable exchange rate.