The Role Asymmetries In Exchange Rate Regimes And Macroeconomic Performance: The Case Of Nigeria

The role of exchange rate in the macroeconomic fundamentals of a country cannot be underestimated but the nonlinear (asymmetric) feature of the exchange rate movements becomes of importance when analyzing its role in macroeconomic performance. Thus, this study, using historical annual time series data from 1970 and 2020, and a nonlinear ARDL model investigated the nexus between exchange rate regimes and the macroeconomic performance in Nigeria. This model allows us to capture that the partial sum of positive exchange rate movements (exchange rate depreciations) and negative exchange rate movements (exchange appreciations). We found the potential exchange rate regime to cause declining inflationary pressure sensitive to whether the exchange rate regime is responding to depreciation or appreciation in its movement. But then, irrespective of whether the exchange rate is depreciating or appreciation, the exchange rate regimes exhibit little or no significant impact on output growth in Nigeria. Specifically, we find that an intermediate exchange rate regime based on exchange rate depreciations is viable for promoting trade surpluses, whereas intermediate exchange rate regime that is due to appreciation of exchange rate tends to cause to trade deficit. More importantly, we found that the magnitude of the role of the nonlinear feature of exchange rate on trade balance is relatively higher when the exchange rate is appreciating.