Assessing the Role of Combined Economic Indicators in Shaping Exchange Rate Policies in Nigeria
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Background of the Study
Exchange rate policies are central to ensuring a nation’s external competitiveness and macroeconomic stability. In Nigeria, policymakers rely on combined economic indicators—such as GDP growth, FDI inflows, and inflation—to guide decisions on currency management and monetary policy. A growing GDP and stable FDI inflows often support currency appreciation, while high inflation tends to depreciate the currency by eroding purchasing power (Adeyemi, 2023). Recent reforms have sought to integrate these economic indicators into a coherent framework for exchange rate determination, aiming to minimize volatility and enhance investor confidence (Okoro, 2024). Empirical evidence from emerging markets underscores that coordinated policy responses that balance these indicators are essential for maintaining stable exchange rates (Balogun, 2025). This study investigates how the combined influence of GDP, FDI, and inflation shapes Nigeria’s exchange rate policies, emphasizing the need for a holistic approach to macroeconomic management that aligns fiscal, monetary, and external sector policies.
Statement of the Problem
Nigeria’s exchange rate policy faces challenges due to the inconsistent performance of key economic indicators. Fluctuating GDP growth, variable FDI inflows, and persistent inflation have contributed to exchange rate instability, undermining economic predictability and investor confidence (Adeyemi, 2023). The absence of an integrated framework that accounts for these combined influences hampers effective policy formulation (Okoro, 2024; Balogun, 2025).
Objectives of the Study
- To examine the relationship between GDP, FDI, inflation, and exchange rate policies.
- To evaluate how these combined indicators influence currency stability.
- To propose policy recommendations for integrating economic indicators into exchange rate management.
Research Questions
- How do GDP, FDI, and inflation collectively influence exchange rate policies in Nigeria?
- What is the impact of these combined indicators on currency stability?
- Which policy measures can improve the integration of these indicators in exchange rate management?
Research Hypotheses
- Combined positive GDP and FDI trends stabilize the exchange rate.
- High inflation undermines the stability achieved through positive GDP and FDI.
- Integrated policy interventions enhance exchange rate stability.
Significance of the Study
This study is significant as it evaluates how combined economic indicators shape Nigeria’s exchange rate policies. The insights will enable policymakers to design more effective, integrated strategies to stabilize the currency and promote external competitiveness (Adeyemi, 2023; Okoro, 2024; Balogun, 2025).
Scope and Limitations of the Study
This study focuses on the domestic economic indicators affecting exchange rate policy in Nigeria. It does not extend to global economic factors or international monetary policy trends.
Definitions of Terms
• Exchange Rate Policies: Government strategies for managing the value of the national currency.
• Economic Indicators: Key statistics, such as GDP, FDI, and inflation, used to assess economic performance.
• Currency Stability: The consistency of a nation’s currency value over time.
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