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Abstract:
The study investigates the impact of exchange rate fluctuations on household welfare as well as the causal relationship between exchange rate fluctuation and household welfare in Nigeria. Household welfare was captured with household consumption expenditure per capita while exchange was defined as the price of a dollar in terms of naira. The study employed the linear regression methodology and Ordinary Least Squares (OLS) estimation technique and Granger causality test on annual time series data from 1980-2014.The result of the analysis revealed that household welfare responds positively and significantly to fluctuations in exchange. The result of the Granger causality test also revealed that exchange rate Granger-causes household welfare. Although the impact of exchange rate fluctuation is positive, it depletes household welfare since fewer goods can be bought with more units of naira. Thus, the overall impact of exchange rate fluctuations on the household welfare in Nigeria is negative. Given the positive impact of the exchange rate on household consumption expenditure and its attendant consequence of depleting savings in order to smooth consumption, the government therefore should evolve exchange rate management approach that will strengthen the naira against the dollar.
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