IMPACT OF EXCHANGE RATE VOLATILITY ON AGGREGATE DEMAND IN NIGERIA(1982 – 2023)

This research work examines the impact of exchange rate volatility on aggregate demand in Nigeria from 1986 – 2016, by applying the vector Auto-regression approach. The choice of this period is to enable us focus strictly on the era of market-based monetary regime in Nigeria. The results confirm a negative effect of money supply on interest rates. The positive impact of terms of trade on the GDP of Nigeria is an indication of rising levels of exports and greater gains from trade in the form of foreign revenues that arises from exportation. The negative but insignificant impact of real exchange rate on the economic growth of Nigeria can be adduced to high dependence on imported commodities amidst rising levels of exchange rate. As result of the high exchange rates, goods now become very expensive to import and this is declining on the economic growth of the country. The positive relationship between inflation rate and the economic growth of Nigeria can be attributed to rising levels in the economic growth of Nigeria in spite of rising levels in the country’s inflation rate. The study recommends the pursuance of a sustainable, stable exchange rate policy. Measures that will promote greater exchange rate stability and improve terms of trade are also to be adopted by the government to promote export trade. There is also the need for sound monetary policy to attain stability in the exchange rate.