IDEAS home Printed from https://ideas.repec.org/a/khe/scajes/v4y2018i1p60-67.html
   My bibliography  Save this article

Revisiting Exchange Rate Pass-Through to Consumer Price Inflation in Nigeria: A Cointegrated Vector Autoregressive Approach

Author

Listed:
  • Ojonugwa Usman
  • Muhammad Sani Musa

Abstract

This study revisits the extent of Exchange Rate Pass-Through (ERPT) in Nigeria based on a Cointegrated Autoregressive Model proposed by Johansen (1988, 1995). Using the annual data from 1960 to 2015, it is found that exchange rate has a positive and significant effect on consumer price inflation, captured by CPI both in the short- and long-run dynamics. The findings also show that import price index and trade openness index have positive and significant effects on consumer price inflation; although the effect of import price index is statistically flawed in the short-run. The implication of this study, therefore, is that exchange rate, import price index and trade openness index are the major determinants of consumer price inflation in the long-run but in the short-run the effect of import price index is blunted.

Suggested Citation

  • Ojonugwa Usman & Muhammad Sani Musa, 2018. "Revisiting Exchange Rate Pass-Through to Consumer Price Inflation in Nigeria: A Cointegrated Vector Autoregressive Approach," Academic Journal of Economic Studies, Faculty of Finance, Banking and Accountancy Bucharest,"Dimitrie Cantemir" Christian University Bucharest, vol. 4(1), pages 60-67, March.
    • Handle: RePEc:khe:scajes:v:4:y:2018:i:1:p:60-67
    as

    Download full text from publisher

    File URL: http://www.ajes.ro/wp-content/uploads/AJES_article_1_146.pdf
    Download Restriction: no
    File URL: http://www.ajes.ro/wp-content/uploads/AJES_article_1_146.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Helmut Lütkepohl, 2005. "New Introduction to Multiple Time Series Analysis," Springer Books, Springer, number 978-3-540-27752-1, March.
    2. Anh D.M. Nguyen & Jemma Dridib & Filiz D. Unsal & Oral H. Williams, 2017. "On the drivers of inflation in Sub-Saharan Africa," International Economics, CEPII research center, issue 151, pages 71-84.
    3. Pinelopi Koujianou Goldberg & Michael M. Knetter, 1997. "Goods Prices and Exchange Rates: What Have We Learned?," Journal of Economic Literature, American Economic Association, vol. 35(3), pages 1243-1272, September.
    4. Marston, Richard C., 1990. "Pricing to market in Japanese manufacturing," Journal of International Economics, Elsevier, vol. 29(3-4), pages 217-236, November.
    5. Taylor, John B., 2000. "Low inflation, pass-through, and the pricing power of firms," European Economic Review, Elsevier, vol. 44(7), pages 1389-1408, June.
    6. M. Abimbola Oyinlola & M. Adetunji Babatunde, 2009. "A Bound Testing Analysis Of Exchange Rate Pass- Through To Aggregate Import Prices In Nigeria: 1980-2006," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 34(2), pages 97-109, December.
    7. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
    8. Jonathan McCarthy, 2007. "Pass-Through of Exchange Rates and Import Prices to Domestic Inflation in Some Industrialized Economies," Eastern Economic Journal, Eastern Economic Association, vol. 33(4), pages 511-537, Fall.
    9. Mr. Ivohasina F Razafimahefa, 2012. "Exchange Rate Pass-Through in Sub-Saharan African Economies and its Determinants," IMF Working Papers 2012/141, International Monetary Fund.
    10. David Romer, 1993. "Openness and Inflation: Theory and Evidence," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 108(4), pages 869-903.
    11. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501, Decembrie.
    12. Kenichi Ohno, 1989. "Export Pricing Behavior of Manufacturing: A U.S.: Japan Comparison," IMF Staff Papers, Palgrave Macmillan, vol. 36(3), pages 550-579, September.
    13. Matthew Kofi Ocran, 2010. "Exchange Rate Pass-Through To Domestic Prices: The Case of South Africa," Prague Economic Papers, Prague University of Economics and Business, vol. 2010(4), pages 291-306.
    14. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
    15. Juselius, Katarina, 2006. "The Cointegrated VAR Model: Methodology and Applications," OUP Catalogue, Oxford University Press, number 9780199285679, Decembrie.
    16. Oladipo Olajide, 2007. "Exchange Rate Pass-Through: A Case Study of a Small Open Economy," Global Economy Journal, De Gruyter, vol. 7(3), pages 1-26, October.
    17. Aliyu, Shehu Usman Rano & Yakub, Ma'aji Umar & Sanni, Ganiyu Kayode & Duke, Omolara, 2009. "Exchange Rate Pass-through in Nigeria: Evidence from a Vector Error Correction Model," MPRA Paper 25053, University Library of Munich, Germany, revised 29 Mar 2010.
    18. Catherine L. Mann, 1986. "Prices, profit margins, and exchange rates," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Jun, pages 366-379.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ben Salem, Leila & Nouira, Ridha & Saafi, Sami & Rault, Christophe, 2024. "How do oil prices affect the GDP and its components? New evidence from a time-varying threshold model," Energy Policy, Elsevier, vol. 190(C).
    2. Ibrahim Abdulhamid Danlami & Sallahuddin Hassan & Mohamad Helmi Bin Hidthiir, 2020. "Assessing the Asymmetry of the Exchange Rate Pass-Through to Inflation in West African Commonwealth Countries," Academic Journal of Economic Studies, Faculty of Finance, Banking and Accountancy Bucharest,"Dimitrie Cantemir" Christian University Bucharest, vol. 6(1), pages 93-109, March.
    3. Mehmet Balcilar & David Roubaud & Ojonugwa Usman & Mark E. Wohar, 2021. "Testing the asymmetric effects of exchange rate pass‐through in BRICS countries: Does the state of the economy matter?," The World Economy, Wiley Blackwell, vol. 44(1), pages 188-233, January.
    4. Leila Ben Salem & Ridha Nouira & Christophe Rault, 2024. "On the Impact of Oil Prices on Sectoral Inflation: Evidence from World’s Top Oil Exporters and Importers," CESifo Working Paper Series 10879, CESifo.
    5. Mehmet BALCILAR & Ojonugwa USMAN & Muhammad Sani MUSA, 2020. "The Long-Run and Short-Run Exchange Rate Pass-Through during the Period of Economic Reforms in Nigeria: Is it Complete or Incomplete?," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 151-172, March.
    6. Ching-Chi Hsu, 2024. "Impact of energy resources on sustainable economic development: Evidence from the Chinese economy," Energy & Environment, , vol. 35(6), pages 2865-2887, September.
    7. Ojonugwa Usman & Osama Mohammed Elsalih, 2018. "Testing the Effects of Real Exchange Rate Pass-Through to Unemployment in Brazil," Economies, MDPI, vol. 6(3), pages 1-13, September.
    8. Mehmet Balcilar & David Roubaud & Ojonugwa Usman & Mark E. Wohar, 2019. "Testing the Asymmetric Effects of Exchange Rate and Oil Price Pass-Through in BRICS Countries: Does the state of the economy matter?," Working Papers 15-49, Eastern Mediterranean University, Department of Economics.
    9. Ibrahim Abdulhamid Danlami, 2020. "Revisiting the West African Commonwealth Countries’ Exchange Rate Pass-Through to Inflation," Academic Journal of Economic Studies, Faculty of Finance, Banking and Accountancy Bucharest,"Dimitrie Cantemir" Christian University Bucharest, vol. 6(1), pages 70-77, March.
    10. Mehmet Balcilar & Ojonugwa Usman & Esther Abdul Agbede, 2019. "Revisiting the Exchange Rate Pass‐Through to Inflation in Africa’s Two Largest Economies: Nigeria and South Africa," African Development Review, African Development Bank, vol. 31(2), pages 245-257, June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Peter Rowland, 2003. "Exchange Rate Pass-Through To Domestic Prices: The Case Of Colombia," Borradores de Economia 2683, Banco de la Republica.
    2. Peter Rowland, 2003. "Exchange Rate Pass-Throught to Domestic Prices: The Case of Colombia," Borradores de Economia 254, Banco de la Republica de Colombia.
    3. Janine Aron & Ronald Macdonald & John Muellbauer, 2014. "Exchange Rate Pass-Through in Developing and Emerging Markets: A Survey of Conceptual, Methodological and Policy Issues, and Selected Empirical Findings," Journal of Development Studies, Taylor & Francis Journals, vol. 50(1), pages 101-143, January.
    4. Mehmet BALCILAR & Ojonugwa USMAN & Muhammad Sani MUSA, 2020. "The Long-Run and Short-Run Exchange Rate Pass-Through during the Period of Economic Reforms in Nigeria: Is it Complete or Incomplete?," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 151-172, March.
    5. Mar𨁌orena Mar𑁥l Cristo & Marta G -Puig, 2013. "Pass-through in dollarized countries: should Ecuador abandon the US dollar?," Applied Economics, Taylor & Francis Journals, vol. 45(31), pages 4395-4411, November.
    6. Brissimis, Sophocles N. & Kosma, Theodora S., 2007. "Market power and exchange rate pass-through," International Review of Economics & Finance, Elsevier, vol. 16(2), pages 202-222.
    7. Nidhaleddine Ben Cheikh & Christophe Rault, 2016. "Recent estimates of exchange rate pass-through to import prices in the euro area," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 152(1), pages 69-105, February.
    8. Jeffrey Frankel & David Parsley & Shang-Jin Wei, 2012. "Slow Pass-through Around the World: A New Import for Developing Countries?," Open Economies Review, Springer, vol. 23(2), pages 213-251, April.
    9. Tapiwa D. Karoro & Meshach J. Aziakpono & Nicolette Cattaneo, 2009. "Exchange Rate Pass‐Through To Import Prices In South Africa: Is There Asymmetry?1," South African Journal of Economics, Economic Society of South Africa, vol. 77(3), pages 380-398, September.
    10. Adekunle, Wasiu & Tiamiyu, Ajao, 2018. "Exchange rate pass-through to consumer prices in Nigeria: An asymmetric approach," MPRA Paper 88797, University Library of Munich, Germany.
    11. Kamel Helali & Maha Kalai, 2015. "Exchange rate pass-through to domestic prices in Tunisia: a short- and long-run analysis," International Journal of Monetary Economics and Finance, Inderscience Enterprises Ltd, vol. 8(3), pages 282-301.
    12. Naz, Farah & Mohsin, Asma & Zaman, Khalid, 2012. "Exchange rate pass-through in to inflation: New insights in to the cointegration relationship from Pakistan," Economic Modelling, Elsevier, vol. 29(6), pages 2205-2221.
    13. Fatma Marrakchi Charfi & Mohamed Kadria, 2016. "Incomplete Exchange Rate Pass-Through Transmission To Prices: An Svar Model For Tunisia," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 11(04), pages 1-23, December.
    14. David C. Parsley, 2004. "Pricing in International Markets: a “Small‐country” Benchmark," Review of International Economics, Wiley Blackwell, vol. 12(3), pages 509-524, August.
    15. Ana Lariau & Moataz El-Said & Ms. Misa Takebe, 2016. "An Assessment of the Exchange Rate Pass-Through in Angola and Nigeria," IMF Working Papers 2016/191, International Monetary Fund.
    16. Khundrakpam, Jeevan Kumar, 2008. "Have Economic Reforms Affected Exchange Rate Pass-Through to Prices in India?," MPRA Paper 51658, University Library of Munich, Germany, revised Apr 2008.
    17. Peter Rowland, 2004. "Exchange Rate Pass-Through to Domestic Prices: the Case of Colombia," Revista ESPE - Ensayos sobre Política Económica, Banco de la Republica de Colombia, vol. 22(47), pages 106-125, December.
    18. Comunale, Mariarosaria, 2014. "Euro-dollar polarization and heterogeneity in exchange rate pass-throughs within the euro zone," MPRA Paper 57704, University Library of Munich, Germany, revised Aug 2014.
    19. Tapiwa D. Karoro & Meshach J. Aziakpono & Nicolette Cattaneo, 2009. "Exchange Rate Pass‐Through To Import Prices In South Africa: Is There Asymmetry?1," South African Journal of Economics, Economic Society of South Africa, vol. 77(3), pages 380-398, September.
    20. Oluwasheyi Oladipo, 2017. "The Effects of Inflation Targeting on Exchange Rate Pass-Through to Domestic Prices: A Case Study of South Africa," Advances in Management and Applied Economics, SCIENPRESS Ltd, vol. 7(6), pages 1-4.

    More about this item

    Keywords

    Exchange Rate Pass-Through; Consumer Price Index; Cointegrated Autoregressive Model; Nigeria;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:khe:scajes:v:4:y:2018:i:1:p:60-67. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Adi Sava (email available below). General contact details of provider: https://edirc.repec.org/data/ffucdro.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.