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

Author

Listed:
  • Ahmed Mohammed, Abdullahi
  • Mati, Sagir
  • Husssain, Mustapha

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.

Suggested Citation

  • Ahmed Mohammed, Abdullahi & Mati, Sagir & Husssain, Mustapha, 2017. "Exchange Rate Pass-Through to Domestic Consumer Prices in Nigeria and Taylor’s Hypothesis: A Structural Vector Auto Regression Analysis," MPRA Paper 111785, University Library of Munich, Germany, revised 09 Dec 2016.
    • Handle: RePEc:pra:mprapa:111785
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    References listed on IDEAS

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    More about this item

    Keywords

    Keywords Exchange Rate Pass Through; Inflation; Taylor’s hypothesis; Structural VAR; Nigeria;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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