This Study Examines the Impact of Inflation on Exchange Rate

This study examines the impact of inflation on exchange rate. The model built for the study inflation rate as the endogenous variable and Exchange rate, interest rate, Broad money supply as the exogenous variables. Annual time series data was gathered from the World development Index (WDI) from 1999 to 2022. The study examines the impact of inflation on exchange rate. The model is specified on the function of inflation rate, Exchange rate, Interest rate, and Broad Money supply. The findings from the regression reveals that exchange rate have a positive impact on inflation. The finding from the f- statistics shows that there is existence of long run relationship between inflation and exchange rate. The study recommends that government should work alongside the central bank, to tighten monetary policy, to cool down the economy and reduce demand – driven inflation. This can stabilize the exchange rate by making the currency more attractive to foreign investors seeking higher returns.