Effect of Exchange Rate Regimes on Exchange Rate Determination in Uncertain Times

Abstract

The focus of the study was to determine the regime that is favourable for Nigeria between fixed
and floating exchange rate regimes and also compared exchange rates among COVID-19, Lassa
fever and Ebola periods. The researchers used secondary data which were collected from Central
Bank Statistical Bulletin of 2020. Ordinary Least Square estimator and Dummy variables were
adopted to achieve the stated objectives of the study. The result revealed that flexible exchange
rate regime is ₦100.88 higher than the fixed regime when taking the balance of payments theory
of exchange rate into account. The value of the flexible exchange rate dummy was found to be
significant and this implied that there is a strong difference between the mean exchange rate value
of the two regimes and flexible exchange rate regimes has inherent distortions to the economy
that fixed regime. The results for uncertain times during global disease periods such as Ebola,
Lassa Fever and COVID-19 for exchange rate fluctuations showed that COVID-19 exchange rate
mean value is significantly different from Ebola and Lassa Fever periods with higher value of
₦428.05, while Ebola and Lassa Fever is ₦164.92 and ₦218.71 respectively on average. These
results proved that exchange rate values were higher in flexible exchange rate regimes and during
COVID-19 Pandemic. Therefore, government should use managed float exchange rate
management to curb the persistence depreciation of exchange rate during pandemic and monitor
judiciously the activities of foreign exchange rate market.