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

Author

Listed:
  • Musti, Babagana Mala

    (Kingston University London)

  • Siddiki, Jalal Uddin

    (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.

Suggested Citation

  • Musti, Babagana Mala & Siddiki, Jalal Uddin, 2018. "Exchange Rate Pass-through to Consumer prices: Nigerian experience from 1986-2013," Economics Discussion Papers 2018-5, School of Economics, Kingston University London.
    • Handle: RePEc:ris:kngedp:2018_005
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    References listed on IDEAS

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    5. Ben Cheikh, Nidhaleddine, 2012. "Asymmetric exchange rate pass-through in the Euro area: New evidence from smooth transition models," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 6, pages 1-28.
    6. Nidhaleddine Ben Cheikh, 2012. "Non-linearities in exchange rate pass-through: Evidence from smooth transition models," Economics Bulletin, AccessEcon, vol. 32(3), pages 2530-2545.
    7. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
    8. Aliyu, Shehu Usman Rano & Yakub, Ma'aji Umar & Sanni, Ganiyu Kayode & Duke, Omolara, 2009. "Exchange Rate Pass-through in Nigeria: Evidence from a Vector Error Correction Model," MPRA Paper 25053, University Library of Munich, Germany, revised 29 Mar 2010.
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    Cited by:

    1. Musti, Babagana Mala & Siddiki, Jalal Uddin, 2018. "Nonlinear and Asymmetric Exchange Rate Pass-Through to Consumer Prices In Nigeria: Evidence from a Smooth Transition Autoregressive Model," Economics Discussion Papers 2018-3, School of Economics, Kingston University London.
    2. Abdul Jalil, 2020. "What Do We Know of Exchange Rate Pass Through?," PIDE Knowledge Brief 2020:5, Pakistan Institute of Development Economics.
    3. Jamilu Iliyasu & Aliyu Rafindadi Sanusi, 2023. "The role of announced exchange rate policies on exchange rate pass-through to consumer prices in an oil-based small open economy," SN Business & Economics, Springer, vol. 3(1), pages 1-20, January.

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    More about this item

    Keywords

    Exchange rate pass-through; Consumer prices; Nigeria.;
    All these keywords.

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General

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