Impact of Exchange Rate Correlates on Consumer Spending In Nigeria (1981-2023)

Abstract

This study investigated the impact of exchange rate fluctuations on consumer spending in Nigeria, prompted by the Naira's continuous decline, which has led to increased import costs, inflation and reduced purchasing power. The research examines how exchange rates, money supply, interest rates and imports influence consumer behaviour. Using a multiple regression method and Vector Autoregressive (VAR) technique, the result reveals a significant negative impact of exchange rates on consumer spending. In contrast, money supply and interest rates have no significant effect on consumer spending. These findings underscore the need for policy intervention to stabilise the economy and protect consumer welfare. To address this, the government should prioritise exchange rate stabilisation by boosting foreign reserves and stimulate exports. Additionally, promoting import substitution through local production incentives can help reduce reliance on imports and stimulate employment. Implementing these measures will enable the government to boost consumer spending, strengthen economic stability and enhance the overall well-being of Nigerian citizens. Achieving these outcomes will require close coordination between monetary and fiscal authorities to ensure effective and sustainable economic growth and development.