Investigating Exchange Rate Pass-through to Consumer Prices in Nigeria

Ugwu Ephraim (), Amassoma Ditimi () and Ehinomen Christopher ()
Additional contact information
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

Folia Oeconomica Stetinensia, 2021, vol. 21, issue 1, 105-121

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.

Keywords: ERPT; Consumer prices index; cointegration; VECM; Nigeria (search for similar items in EconPapers)
JEL-codes: C11 C22 E31 F31 N17 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://doi.org/10.2478/foli-2021-0008 (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:vrs:foeste:v:21:y:2021:i:1:p:105-121:n:10

DOI: 10.2478/foli-2021-0008

Access Statistics for this article

Folia Oeconomica Stetinensia is currently edited by Waldemar Tarczyński

More articles in Folia Oeconomica Stetinensia from Sciendo
Bibliographic data for series maintained by Peter Golla ().