Analysis of the Impact of Inflation, Interest Rate and Exchange Rate on Economic Development

Abstract

This article seeks to empirically analyze the influence of inflation, interest and exchange rate on economic development. The sustainability of high economic development in most industrialized and developing countries has been the primary objective of macroeconomic policies.  Notwithstanding, there exist considerable contention on the innate feature of the inflation, interest rate, exchange rate and development association. The major purpose of this work is to assess the inflation, interest and exchange rate effect on some economic development indicators in Nigeria which includes the life expectancy index, human development index, consumption per capita, physical quality of life, and health and education index. The secondary data employed were collected from the CBN statistical bulletins from 1981-2017 and were analyzed adopting descriptive, correlation as well as regression analysis. The empirical analysis revealed the existent relative effect of macroeconomic variables on Nigeria economic development indicators. The impacts of the economic attributes mechanisms on performance indicators are distinct. The work infers that the diverse economic characteristics’ components influence diverse indicators of performance in various ways. It is however recommended that inflation, interest rate and exchange rate should be used to create a favorable investment climate on economic development variables, the apex bank needs to consider inflation threshold for the country in the process of targeting single digit inflation as one of its major objectives. Also, government should adopt tight monetary policy measures to control inflation from time to time.