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Effect of Exchange Rates Fluctuations and Misery Index: Evidence from Nigeria

Elijah Ayomiposi Faluyi, Olusola Joel Oyeleke, Olatokunbo Aina Oluwayemisi

Abstract

This study examined the relationship between exchange rate and the Misery Index in Nigeria using time series data from 1999 to 2022 to assess both linear and regime-dependent effects. The analysis was conducted using the Autoregressive Distributed Lag , VEC Granger Causality/Block Exogeneity Wald Tests, and Markov Switching Regression Model. The findings reveal that exchange rate depreciation significantly raises economic misery in both the short and long run, specifically, a 1-unit increase naira depreciation increases the Misery Index by 0.022 units in the long run and by 0.098 units in the short run. The error correction term (–0.92) suggests rapid adjustment toward equilibrium. Broad money supply reduces economic misery significantly, while government expenditure has opposing effects raising misery in the short run but mitigating it in the long run. Granger causality results confirm a unidirectional influence from exchange rate to the Misery Index. Additionally, a 1-unit depreciation in naira raises the Misery Index by 0.105 in stable macroeconomics periods but by 0.354 in unstable macroeconomic periods indicating a triple-fold increase in the effect exchange rate on the misery index during crises. The study highlighted the need for coordinated monetary-fiscal policies and exchange rate stabilization to reduce economic misery in Nigeria.

Keywords

Exchange RateMisery IndexARDLMarkov SwitchingNigeriaInflation

References

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