Abstract

This study attempts to analyse the comparative impact of fixed and flexible exchange rate regimes on Nigerian economy. Data for this study are obtained on real gross domestic product, nominal exchange rate, purchasing power parity, consumer price index and inflation rate. The data covered the period 1970 to 2006. This was done purposely to capture the two regimes of fixed exchange rate and flexible exchange rate. The study adopted multivariate autogressive VAR model technique. The results of co-integration analysis showed that there is one co-integrated vector among nominal exchange rate, inflation rate, consumer price index, purchasing power parity and economic growth. Granger causality test based on error correction models (ECM) have indicated that nominal exchange rate, inflation rate, purchasing power parity and consumer price index influenced the steady state level of GDP. From this study, it was found out that both fixed and flexible exchange rate regimes have positive impact on the GDP. The two extreme exchange rate regimes influence output level of GDP positively. However, there is no significant difference between the two extreme exchange regimes and inflation, they both enhanced high inflation rate in the economy that is inflation is high in both regimes. The study therefore recommends blending of appropriate fiscal policy with any of the exchange regimes.