The research study adopted the quantitative study design to

be able to determine the relationship between inflation, interest rates,

exchange rates and economic growth also to explain variations between them. The

area of study is the Nigerian economy and the study sought out to understand

the important correlation between inflation, interest rates, exchange rates and

economic growth. The study chose to use the sample period 1981-2016 for which

data is collected analyzed and interpreted. Once the relationship is clarified

between these variables this can assist in policy formulation since the trends

of the variables will be known.

The current study relies on the yearly secondary data. The

sample size to be used is 35years which is from 1981-2016. The data is obtained

from the Central Bank of Nigeria (www.cbn.gov.ng).

The data represent two variables independent and dependent

which are inflation, interest rates, exchange rate and economic growth

respectively. I have chosen Eviews 9 software to estimate the multiple

regression model. Also, to emphasize the existence and influence of other

factors, not considered in this model, we have included the free term C. the

estimation of the parameters is based on the least squares method. The selected

model used for this study is as follows:

RGDP=?0+ ?1RER+ ?2INTR+ ?3INF + e

Y:

Dependent variable which is the GDP

?0: Intercept of the regression model

RER:

Real Exchange Rate

INTR:

Interest Rate

INF:

Inflation

RGDP:

Real Gross Domestic Product

e: Error term, reflect that this is an estimated model not

actual relationship of the variables

The study was done by using reliable secondary yearly data

which was not manipulated.

Definition of Variables

INFLATION: Inflation is a

rise in the general level of prices of goods and services in an economy over a

period of time. There are a few causes of inflation where aggregate demand

increases faster than aggregate supply, therefore increasing the cost of goods

and services. The imbalance of aggregate demand and supply is linked to the

government’s deficit, expansion of bank’s interest rates and the increase of

foreign demand. Inflation also increases the price of goods and the price of

work labor thus the cost of goods and selling price increases. Inflation has a

few indictors such as Consumer Price Index (CPI), Wholesale Price Index (WPI),

and Implicit Price Index (deflator GDP).

GROSS DOMESTIC PRODUCT (GDP): GDP

is a good indicator of a country’s microeconomic status and development. GDP

can be seen from two sides such as the expenditure and income approach. First

we will look at the expenditure approach. It takes account of all goods and

services within a given time period. A good example will be such as household

items that we buy daily, purchases from a foreign investor and services. On the

other hand, the income approach can be best described as the level of worker’s

compensation, rent, interest rates, income of a particular business, tax of a

produced goods and import level

EXCHANGE RATES: in the

theory of economics, exchange rate is a value that a currency has compared to

another currency. Exchange rate can be divided into two categories, fixed

exchange rate and flexible exchange rate. In a fixed exchange rate, it is set

by the government, whereas flexible exchange rate is set by the market with or

without the influence of the government.

INTEREST RATES: interest

rate cane be described as a value that is gained in the effort of a value that

has been saved or invested. These rates will reflect the interaction between

exchanges of money. There are short term and long term rates. Short term rates

is influenced by the Central Bank, thus money is being monopolized accordingly.

In long term rates however, shows the condition of the current economy and the

possibility of inflation. Both of the rate are linked and work with one another.