Assessing the Dynamic Interplay between Consumption Expenditure, Real Exchange Rate and Output in Nigeria: Evidence from Short Run and Long Run Vectors

Abstract

One of the major determinants of consumption expenditure is per capita income which hitherto depends on price level and exchange rate thereby influencing the level of demand and welfare in an economy. The aim of this study is to assess the interplay between consumption expenditure, real exchange rate and output in Nigeria. Utilizing time series data from 1988 to 2019, the result of ARDL bounds test for co-integration suggests that only when the log of consumption expenditure (LCONSEXP) is a dependent variable that co-movement exist among variables. While, the result of short run estimate shows that real exchange rate, GDP and consumption expenditure are statistically insignificant. However, in the long run, REXCH is statistically significant but negatively related to LCONSEXP whereas GDP is positively related LCONSEXP but statistically insignificant. Hence, the paper concludes that real exchange rate is a significant determinant of consumption expenditure than the national output thereby recommending for the policies that will ensure stability in the volume of money supply, exchange rate and price level necessary for improved productivity in Nigeria.