Exchange Rate, Inflation and Interest Rates Relationships: AnAutoregressive Distributed Lag Analysis
Ebiringa, Oforegbunam Thaddeus; Anyaogu, Nnneka, B.

This papermodelsa long runrelationship between exchange rate, interest rate and inflation using autoregressive distributed lag (ARDL)co-integration analysis. The study is motivated by the desire to ensure stability in exchange regime through a structurally nexus of interest rate and inflation volatility and targeting. Using historical data on Nigeria (1971-2010), the paper established asignificant short-run and long runpositive relationship between inflation and exchange rate. On the other hand, interest rateexhibited anegative relationship, though insignificant. Concertedeffort of all monetary authorities is therefore neededto ensure that periodic variation in inflation is kept at the barest minimum for stability in exchange rate regime to be achieved.

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