Exchange Rate Pass-through to Consumer prices: Nigerian experience from 1986-2013

Babagana Musti and Jalal Siddiki

No 2018-5, Economics Discussion Papers from School of Economics, Kingston University London

Abstract: This paper examines the level and speed of exchange rate pass-through (ERPT) to consumer prices in Nigeria using a partial equilibrium microeconomic mark-up model with quarterly time series data from 1986 to 2013 applying the vector error correction model (VECM) incorporating structural breaks in exchange rates. It assesses the level of long-run ERPT, the speed of adjustments to the long-run equilibrium and the level of short-run ERPT. The results show high and statistically significant ERPT in the long-run in Nigeria. However, the short-run results show slow and insignificant adjustments of prices to its long-run equilibrium trend. The impulse response analyses also support the cointegration results showing the near zero response of consumer prices to exchange rate shocks. The variance decomposition results demonstrate the contribution of external shocks whereby the exchange rate shocks made some modest contribution to the domestic prices. The strong policy implication of these empirical results is that exchange rate stability plays a crucial role in controlling domestic consumer price inflation in Nigeria and comprable economies.

Keywords: Exchange rate pass-through; Consumer prices; Nigeria. (search for similar items in EconPapers)
JEL-codes: F30 F40 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2018-07-05
New Economics Papers: this item is included in nep-ets, nep-mon and nep-opm
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Citations: View citations in EconPapers (3)

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