Stabilization policy in Nigeria under alternative exchange rate regimes: a postulated empirical macro-model approach

Abstract

The study examines the effectiveness of stabilization policy in Nigeria under alternative exchange rate regimes. A simple version of the Mundell - Fleming model was adopted. The results indicate that the exchange rate regime has implications for the outcome of any stabilisation measure adopted, and further, it is observed that the success of debt management strategies will depend on the exchange rate regime. The study argues that the impact of fiscal policy on the current account balance also depends on the exchange rate regime. It arrived at these conclusions based on certain assumptions such as static expectation and by ignoring price movement. In sum, the study supports the use of a flexible exchange rate regime by an indebted but reforming economy like Nigeria.