Quantitative Analysis of the Impact of Exchange Rate Policies on Nigeria’s Economic Growth: a Test of Stability of Parameter Estimates
Eze, Titus Chinweuba, Okpala, Cyril Sunday

Abstract
Exchange rate policy in Nigeria has oscillated from a fixed exchange rate regime in 1960, and to a pegged regime between 1970s and mid 1980s and finally to various variants of the floating regime from 1986 with the introduction of the Structural Adjustment Programme (SAP). This study tested the impact of the two basic exchange rate policies, namely, the fixed and flexible regimes, using the Chow test procedure to determine the structural stability of the relationship between exchange rate and output of goods and services during the two regimes. However, before the Chow test was applied, the time series characteristics of the variables used in the model were tested, using Augmented Dickey-Fuller unit root tests and Johansson co integrating tests. All the variables were integrated of order one, and co integrated. The estimated long run equation revealed that, apart from government expenditure (GEX), both exchange rate (EXR) and money supply (M2) are highly significant in the determination of Nigeria’s economic growth performance. The adjusted R-square value of about 0.85 was considerably high implying that about 85% of the variability in Nigeria’s economic growth performance is determined by the regressors. The joint influence of the explanatory variables measured by the F-value of 76.19601 is also highly significant. The D-W value of 0.288965 indicated the presence of autocorrelation of the first order. The conducted Chow test showed that the relationship between exchange rate and economic growth performance in Nigeria have not undergone any significant structural changes. The implication is that no matter the exchange rate regime, whether fixed or flexible, what matters is the effectiveness of the management. Nigeria can substantially improve on its economic growth performance through improvements in the overall management of its exchange rate policy.

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