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This study evaluates the effect of exchange rate volatility on economic growth in Nigeria from 1986 to 2014. It determines the extent and manner to which economic growth responds to exchange rate volatility in Nigeria. The empirical analysis of this study is to determine the degree of volatility of real effective exchange rate using the Generalised Autoregressive Heteroskedasticity (GARCH) model and the Generalized Method of Moments is used to determine the effect of real exchange rate volatility on economic growth. The study finds that there is high volatility of real effective exchange rate. It also reveals that real effective exchange rate is negatively and significantly related to economic growth. This finding suggests that exchange rate volatility is harmful to the growth of the Nigerian economy. This study recommends that government should constantly seek to maintain a stable exchange rate, increase its expenditure, particularly capital expenditure and implement sustainable reforms to increase the depth of the financial sector.

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This research tested the monetary approach to Balance of Payment in developing countries of West Africa in order to affirm whether the specified relationship in the approach depicts correctly the actual behaviour of the economies. Time series and cross-sectional data that ranges from 1970 – 2016 were used. The empirical results of the fixed effect model established a significant positive relationship between net domestic credit, interest rate and exports; an insignificant positive relationship between capital movements, imports, income and the dependent variable. Exchange rate, however, had a significant negative relationship with the net foreign assets, while inflation had an insignificant but negative relationship with net foreign assets. The pairwise causality tests indicated a unidirectional relationship between exchange rate, net domestic credit and net foreign assets while the other variables move independently and cannot granger cause net foreign assets. Hence, the study concludes that the Polak model is valid in the West Africa Monetary Zone despite the fact that they are no more operating a fixed exchange rate system. The study suggests that the attention of the monetary authorities and the governments should not only be on decreasing the money supply in the economy, since an increase in net domestic credits has a positive impact on the net foreign assets provided it is channeled towards domestic production.