The study investigated the impact of exchange rate instability on the Nigerian economy for the period 1986-2020
employing Error correction model. Annual time series data was used and the study specifically sought to,
determine the effect of Monetary Policy Rate instability on the Nigerian Economy, ascertain the impact of
Interest Rate instability on the Nigerian Economy, determine the causal relationship between Inflation Rate
instability and the Nigerian Economy. Gross Domestic Product is the dependent variable of this study, while
inflation rate, interest rate monetary policy rate are the independent variables. We applied in our analysis,
Phillips- Perron unit root Test, Johansen test for co-integration among variables, Error Correction Model
(ECM) was adopted to investigate the linkage of these variables to the Nigerian economy. The co-integration
test confirms that there is a long run relationship between Exchange Rate instability and the Nigerian Economy.
The estimated result shows that the exchange rate instability has no significant and negative influence on Gross
Domestic Product in Nigeria during the period. The result therefore suggested that devaluation of the domestic
currency does not lead to improvement in the Exchange Rate stability and hence GDP position of the country. It
was therefore recommended that measures to stabilize exchange rate and check its continuous free fall should be
carefully considered as a policy option.
