THE STUDY OF EXCHANGE RATE VARIATIONS ON AGGREGATE DEMAND IN NIGERIA
LITERATURE REVIEW
2.1 REVIEW OF THEORETICAL LITERATURE
The importance of exchange rate policies in economic adjustments cannot be overemphasized as it has become
the subject of considerable debate in many economies in the word today.
Several economists in the world today have discovered that in the bid to achieve certain objectives, that are
economy wide in nature, the issue of exchange rate cannot be handled lightly. They try to see if exchange rate
instabilities affect other macroeconomic aggregates positively or negatively over time.
Efforts have also been made to see if the economic problems of the Less Developed Countries (LDCs) could be
tackled employing exchanging ate policy as a vital instrument. To this end, several exchange rate models were
propounded by different economies in the world to suggest how exchange rate could, in the first place, be
determined.
2.2 EXCHANGE RATE DERMINIATION MODELS
exchange rate determination has been a crucial issue in economic research. As a result, several schools of though
propounded different ways by which exchange ate could be determined. Before the 1970’s the Keynesian
model, which was developed by James Meode (1951), dominated the scene. In 1962 and 1963, it was amended
by Marcus Fleming and Robert Murdell respectively to be known as the Mudell-Fleming model. However
during the 1970s, other exchange rate models, which were based on considerations of stock equilibrium in the
financial market internationally, were developed.
