Exchange Rate Pass-Through to Domestic Consumer Prices in Nigeria and Taylor’s Hypothesis: A Structural Vector Auto Regression Analysis

Abdullahi Mohammed, Sagir Mati and Mustapha Husssain

MPRA Paper from University Library of Munich, Germany

Abstract: Abstract This study examines the degree and extent of exchange rate pass through into domestic consumer price inflation in the Nigerian economy between 1986Q1 and 2013Q1 using structural vector auto regression (SVAR) methodology. The results from impulse response analysis show that the exchange rate pass through to consumer prices is incomplete, higher in the early decades of the sample and relatively low in the subsequent decades of the sample and below the average range. Yielding a dynamic exchange rate pass through elasticity coefficient of 0.33. Therefore, there seems to be positive relationship between ERPT and inflation for the Nigerian economy: As inflation declines (rises) overtime the ERPT becomes lower (higher). This vindicates a strong evidence that is consistent with Taylor’s (2000) proposition that high or average pass through is associated with high inflation and vice versa. Overall, the results offer supportive evidence in favour of the exchange rate channel, and monetary policy rate to be conceivable track for monetary policy transmission mechanism in the Nigerian economy.

Keywords: Keywords Exchange Rate Pass Through; Inflation; Taylor’s hypothesis; Structural VAR; Nigeria (search for similar items in EconPapers)
JEL-codes: E31 E52 E58 F31 (search for similar items in EconPapers)
Date: 2017-08-10, Revised 2016-12-09
References: View references in EconPapers View complete reference list from CitEc
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Published in American Journal of Economics 2017, 7(5): 201-210.7(5)(2017): pp. 210-210

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