• 2026-06-17
• Badejo, O.M, Omotayo-Tomo, M.S, Francis S.D, Awolere I.T
• Volume 8, Issue 1

Abstract

Nigeria's economic trajectory in the era of democracy consolidation and economic struggles (2003-2024) has been characterized by persistent inflation and exchange rate volatility, raising concerns about their interdependence and impact on economic stability. This relationship is crucial for policymakers, investors, and financial institutions seeking to mitigate economic uncertainties. This study employs copula modelling to assess the dependency structure between inflation and exchange rates in Nigeria, The results considering their joint distribution beyond linear correlation measures. Using data from 2003 to 2024 extracted from Central bank of Nigeria statistical bulletin, the study applies various copula families, including Gaussian, t-Copula, Clayton, and Gumbel, to capture the dependence structure between the two macroeconomic variables. The best-fitting copula model is selected based on log-likelihood, Akaike Information Criterion (AIC), Cramer-Von Mises goodness-of-fit test, and Kendall's Tau empirical and theoretical comparisons. indicate that the Gumbel copula provides the most suitable fit, revealing weak but significant upper tail dependence. This implies that extreme inflationary episodes tend to coincide with substantial exchange rate fluctuations, particularly in times of economic distress. The findings concluded that Nigeria's macroeconomic environment is vulnerable to inflation-induced currency depreciation, necessitating a more integrated policy approach. It highlights the importance of coordinated monetary and fiscal policies to stabilize inflation while mitigating exchange rate risks. Consequently, the study recommends the implementation of robust inflation-targeting frameworks, enhanced policy synchronization, and improved economic forecasting tools to manage inflation-exchange rate dynamics effectively. Addressing structural economic weaknesses will further enhance Nigeria's resilience against macroeconomic shocks.

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