IDEAS home Printed from https://ideas.repec.org/a/kap/ecopln/v55y2022i2d10.1007_s10644-021-09339-3.html
   My bibliography  Save this article

Asymmetric response of cpi inflation to exchange rates in oil-dependent developing economy: the case of Nigeria

Author

Listed:
  • Perekunah. B. Eregha

    (Pan-Atlantic University)

Abstract

The question of whether domestic prices respond to either official exchange rate or parallel exchange rate movement is a key research issue especially in an oil-dependent developing country like Nigeria with rising fiscal pressures and a vibrant parallel market. Also from the monetary authority perspective, it is imperative to know if prices respond symmetrically and/or asymmetrically to both official and parallel exchange rates movement. Consequently, this study examines the response of domestic prices to both official and parallel exchange rates movement for the period 1995Q1-2019Q1 with the Shin et al. (In: Horrace WC, Sickles RC (eds) Festchrift in Honour of Peter Schmidt. Springer, New York, pp 281–414, 2014) nonlinear ARDL approach. The results provide support for prices responding symmetrically to parallel rates than the official rate especially in periods of large exchange rate premium. However, prices only respond differently to depreciation and appreciation of the official exchange rate in Nigeria. Consequently, the government needs to ensure some levels of fiscal austerity and possible exchange rate unification when the premium gets large if the intention is to insulate domestic prices from fiscal pressures. Also, the Central Bank of Nigeria needs to take cognizance of possible asymmetric relationship in their decisions to ensure price stability so as not to distort monetary policy effect.

Suggested Citation

  • Perekunah. B. Eregha, 2022. "Asymmetric response of cpi inflation to exchange rates in oil-dependent developing economy: the case of Nigeria," Economic Change and Restructuring, Springer, vol. 55(2), pages 1091-1108, May.
    • Handle: RePEc:kap:ecopln:v:55:y:2022:i:2:d:10.1007_s10644-021-09339-3
    DOI: 10.1007/s10644-021-09339-3
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s10644-021-09339-3
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s10644-021-09339-3?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Kiguel, Miguel & O'Connell, Stephen A, 1995. "Parallel Exchange Rates in Developing Countries," The World Bank Research Observer, World Bank, vol. 10(1), pages 21-52, February.
    2. Anindya Banerjee & Juan Dolado & Ricardo Mestre, 1998. "Error‐correction Mechanism Tests for Cointegration in a Single‐equation Framework," Journal of Time Series Analysis, Wiley Blackwell, vol. 19(3), pages 267-283, May.
    3. Mr. Aasim M. Husain & Mr. Ashoka Mody & Nienke Oomes & Mr. Robin Brooks & Mr. Kenneth Rogoff, 2003. "Evolution and Performance of Exchange Rate Regimes," IMF Working Papers 2003/243, International Monetary Fund.
    4. Morris, Stephen, 1995. "Inflation dynamics and the parallel market for foreign exchange," Journal of Development Economics, Elsevier, vol. 46(2), pages 295-316, April.
    5. Vladimir Sokolov & Byung‐Joo Lee & Nelson C. Mark, 2011. "Linkages Between Exchange Rate Policy And Macroeconomic Performance," Pacific Economic Review, Wiley Blackwell, vol. 16(4), pages 395-420, October.
    6. Bleaney Michael & Francisco Manuela, 2007. "Exchange Rate Regimes, Inflation and Growth in Developing Countries -- An Assessment," The B.E. Journal of Macroeconomics, De Gruyter, vol. 7(1), pages 1-20, July.
    7. Delatte, Anne-Laure & López-Villavicencio, Antonia, 2012. "Asymmetric exchange rate pass-through: Evidence from major countries," Journal of Macroeconomics, Elsevier, vol. 34(3), pages 833-844.
    8. Mr. Elie Canetti & Mr. Joshua E. Greene, 1991. "Monetary Growth and Exchange Rate Depreciation As Causes of Inflation in African Countries: An Empirical Analysis," IMF Working Papers 1991/067, International Monetary Fund.
    9. Mr. Jonathan David Ostry & Ms. Anne Marie Gulde & Mr. Atish R. Ghosh & Holger C. Wolf, 1995. "Does the Nominal Exchange Rate Regime Matter?," IMF Working Papers 1995/121, International Monetary Fund.
    10. Steven B. Kamin, 1997. "A multi-country comparison of the linkages between inflation and exchange rate competitiveness," BIS Working Papers 45, Bank for International Settlements.
    11. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
    12. repec:aer:wpaper:36 is not listed on IDEAS
    13. Durevall, Dick & Loening, Josef L. & Ayalew Birru, Yohannes, 2013. "Inflation dynamics and food prices in Ethiopia," Journal of Development Economics, Elsevier, vol. 104(C), pages 89-106.
    14. Barungi, B-M, 1997. "Exchange Rate Policy and Inflation : The Case of Uganda," Papers 59, African Economic Research Consortium.
    15. repec:aer:wpaper:182 is not listed on IDEAS
    16. repec:aer:wpaper:59 is not listed on IDEAS
    17. Justin M. Dubas & Byung-Joo Lee & Nelson C. Mark, 2005. "Effective Exchange Rate Classifications and Growth," NBER Working Papers 11272, National Bureau of Economic Research, Inc.
    18. Louis Kuijs, 1998. "Determinants of Inflation, Exchange Rate, and Output in Nigeria," IMF Working Papers 1998/160, International Monetary Fund.
    19. Zhu, Huiming & Chen, Xiuyun, 2019. "Asymmetric effects of oil prices and exchange rates on China’s industrial prices," Energy Economics, Elsevier, vol. 84(C).
    20. Ajay Chhibber & Nemat Shafik, 1992. "Devaluation and Inflation with Parallel Markets: An Application to Ghana," Journal of African Development, African Finance and Economic Association (AFEA), vol. 1(1), pages 108-134.
    21. Baharumshah, Ahmad Zubaidi & Sirag, Abdalla & Soon, Siew-Voon, 2017. "Asymmetric exchange rate pass-through in an emerging market economy: The case of Mexico," Research in International Business and Finance, Elsevier, vol. 41(C), pages 247-259.
    22. Odubogun, K., 1995. "Institutional Reforms and the Management of Exchange Rate Policy in Nigeria," Papers 36, African Economic Research Consortium.
    23. Azam, Jean-Paul, 1999. "Dollars for Sale: Exchange Rate Policy and Inflation in Africa," World Development, Elsevier, vol. 27(10), pages 1843-1859, October.
    24. repec:aer:wpaper:138 is not listed on IDEAS
    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. Adeel Saleem & Maqbool H. Sial & Ahmed Raza Cheema, 2023. "Does an asymmetric nexus exist between exports and economic growth in Pakistan? Recent evidence from a nonlinear ARDL approach," Economic Change and Restructuring, Springer, vol. 56(1), pages 297-326, February.

    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. Cruz-Rodríguez, Alexis, 2016. "An empirical assessment of exchange arrangements and inflation performance," MPRA Paper 73005, University Library of Munich, Germany.
    2. Núñez, Héctor M. & Otero, Jesús & Trujillo-Barrera, Andrés, 2023. "Wholesale price rigidities and exchange rate pass-through: Evidence from daily data of agricultural products," International Economics, Elsevier, vol. 176(C).
    3. Diby François Kassi & Dilesha Nawadali Rathnayake & Akadje Jean Roland Edjoukou & Yobouet Thierry Gnangoin & Pierre Axel Louembe & Ning Ding & Gang Sun, 2019. "Asymmetry in Exchange Rate Pass-Through to Consumer Prices: New Perspective from Sub-Saharan African Countries," Economies, MDPI, vol. 7(1), pages 1-33, January.
    4. Alexis Cruz-Rodriguez, 2013. "Choosing and Assessing Exchange Rate Regimes: a Survey of the Literature," Revista de Analisis Economico – Economic Analysis Review, Universidad Alberto Hurtado/School of Economics and Business, vol. 28(2), pages 37-61, October.
    5. Cruz-Rodríguez, Alexis, 2022. "Exchange arrangements and economic growth. What relationship is there?," MPRA Paper 113897, University Library of Munich, Germany.
    6. Kassi, Diby François & Sun, Gang & Ding, Ning & Rathnayake, Dilesha Nawadali & Assamoi, Guy Roland, 2019. "Asymmetry in exchange rate pass-through to consumer prices: Evidence from emerging and developing Asian countries," Economic Analysis and Policy, Elsevier, vol. 62(C), pages 357-372.
    7. Mohsen Bahmani-Oskooee & Ilir Miteza & Altin Tanku, 2020. "Exchange rate changes and money demand in Albania: a nonlinear ARDL analysis," Economic Change and Restructuring, Springer, vol. 53(4), pages 619-633, November.
    8. Alexis CRUZ-RODRIGUEZ, 2016. "Exchange Arrangements and Currency Crises: What´s the matter with the exchange rate classification?," Journal of Economics and Political Economy, KSP Journals, vol. 3(2), pages 377-392, June.
    9. Ho, Sy-Hoa & Hafrad, Idir, 2020. "Asymmetric exchange rates pass-through: New evidence from Vietnam," MPRA Paper 98651, University Library of Munich, Germany.
    10. Aghion, Philippe & Bacchetta, Philippe & Rancière, Romain & Rogoff, Kenneth, 2009. "Exchange rate volatility and productivity growth: The role of financial development," Journal of Monetary Economics, Elsevier, vol. 56(4), pages 494-513, May.
    11. Thalmann, Philippe & Vielle, Marc & Viguier, Laurent, 2006. "Probabilistic GHG Emissions Forecasts under Energy Prices Uncertainty," Conference papers 331505, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    12. Sy-Hoa Ho & Idir Hafrad & Viet Dung Tran, 2022. "Asymmetric exchange rates pass-through in Vietnam," Economics Bulletin, AccessEcon, vol. 42(3), pages 1657-1672.
    13. Petreski, Marjan, 2014. "Grooming Classifications: Exchange Rate Regimes and Growth in Transition Economies," MPRA Paper 54473, University Library of Munich, Germany.
    14. Nguyen, Thi-Ngoc Anh & Sato, Kiyotaka, 2019. "Firm predicted exchange rates and nonlinearities in pricing-to-market," Journal of the Japanese and International Economies, Elsevier, vol. 53(C), pages 1-1.
    15. Biswajit Mohanty & N.R. Bhanumurthy, 2014. "Exchange Rate Regimes and Inflation: Evidence from India," International Economic Journal, Taylor & Francis Journals, vol. 28(2), pages 311-332, June.
    16. Sy-Hoa Ho & Jamel Saadaoui, 2021. "Symmetric and asymmetric effects of exchange rates on money demand: empirical evidence from Vietnam," Applied Economics, Taylor & Francis Journals, vol. 53(34), pages 3948-3961, July.
    17. Sy Hoa Ho & Jamel Saadaoui, 2019. "Symmetric and asymmetric effects of exchange rates on money demand: Empirical evidence from Vietnam," Working Papers hal-02421007, HAL.
    18. Abouelkhaira, Anass & Gahaz, Taha & Y. Tamsamani, Yasser, 2018. "Choix du régime de change et croissance économique : Une analyse empirique sur des données de panel africaines [Exchange Rate Regime Choice and Economic Growth: An Empirical Analysis on African Pan," MPRA Paper 84613, University Library of Munich, Germany.
    19. Dao Thi-Thieu Ha & Nga Thi Hoang, 2020. "Exchange Rate Regime and Economic Growth in Asia: Convergence or Divergence," JRFM, MDPI, vol. 13(1), pages 1-15, January.
    20. Safet Kurtović & Nehat Maxhuni & Blerim Halili & Sead Talović, 2021. "Asymmetric exchange rate pass‐through into import prices of Slovenia's manufacturing sector," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(3), pages 4609-4633, July.

    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:kap:ecopln:v:55:y:2022:i:2:d:10.1007_s10644-021-09339-3. 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: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    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.