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Investigating Exchange Rate Pass-through to Consumer Prices in Nigeria

Author

Listed:
  • Ugwu Ephraim

    (Department of Economics, Faculty of Social Sciences, Federal University, Oye -Ekiti, Nigeria)

  • Amassoma Ditimi

    (Department of Economics, Faculty of Social Sciences, Federal University, Oye -Ekiti, Nigeria)

  • Ehinomen Christopher

    (Department of Economics, Faculty of Social Sciences, Federal University, Oye -Ekiti, Nigeria)

Abstract

Research background: There have been several studies on the degree of exchange rate pass-through (ERPT) to consumer prices, as well as macroeconomic environment with yet no clear direction. Purpose: This research work investigates exchange rate pass-through effects into consumer prices in Nigeria from 1960 to 2018. Research methodology: The methodology employed by the study for estimation is the Johansen cointegration and Vector Error Correction Model (VECM) procedures. Results: The empirical results indicate an incomplete pass-through of exchange rate into consumer prices in Nigeria. The pass-through is found to be 1.6 for the model under consideration. The impulse response function results indicate that the response of the consumer prices to the exchange rate shock decreases immediately to a negative shock in the short run, and continues along the horizon to a positive shock in the long run. Also, the response of consumer prices to interest rate shock decreases immediately and continues to fluctuate to a negative shock in both the short run long run horizon. Novelty: The results support the view that exchange rate policy should be complimented with coordinated macroeconomic policy approaches in order to control inflationary level in the economy. The study therefore recommends that the Federal Government should adopt a tightening of the monetary policy as it will help reduce the impact of exchange rate depreciation on consumer prices.

Suggested Citation

  • Ugwu Ephraim & Amassoma Ditimi & Ehinomen Christopher, 2021. "Investigating Exchange Rate Pass-through to Consumer Prices in Nigeria," Folia Oeconomica Stetinensia, Sciendo, vol. 21(1), pages 105-121, June.
    • Handle: RePEc:vrs:foeste:v:21:y:2021:i:1:p:105-121:n:10
    DOI: 10.2478/foli-2021-0008
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    References listed on IDEAS

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    More about this item

    Keywords

    ERPT; Consumer prices index; cointegration; VECM; Nigeria;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • N17 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Africa; Oceania

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