EXCHANGE RATE PASS-THROUGH TO DOMESTIC PRICES IN NIGERIA FROM (1980Q1-2009Q4).
EXCHANGE RATE PASS-THROUGH TO DOMESTIC PRICES IN NIGERIA FROM (1980Q1-2009Q4).
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Date
2015-05
Authors
EJIGBO, Andrew
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Abstract
The study examines the degree of exchange rate pass-through to domestic prices in Nigeria. The objectives of the study are: to determine whether changes in exchange rate have any significant long term effects on domestic and import prices in Nigeria; to examine, if any, the magnitude of the impact; and to determine the speed of the pass-through. Using time series quaterly data from 1980Q1 to 2009Q4 and Vector Autoregressive(VAR) estimation technique,the study finds that there is no long run link between exchange rate and import prices, or between exchange rate and domestic prices. This is consistent with the argument that in the long run, all nominal variables don’t matter. Also the pass-through effect from exchange rate to import price is incomplete and low. This is also consistent with the principle of pricing to market.The pass-through effect of exchange rate to import prices takes about 7 quarters to fully manifest, suggesting a relatively slow pass-through effect which is the first stage.The second stage pass-through effect, from import price to domestic price is also incomplete, low and slow. It takes even longer time of 17 quarters to fully manifest. The total (or direct) pass-through effect of exchange rate to domestic price is also incomplete, low and slow, taking up to about 17 quarters to fully manifest. This is consistent with the general finding in the literature especially for developing economies. One possible explanation of the predominance of this pricing to market phenomena is that as global firms compete for market in these developing countries, depreciating exchange rate that would otherwise cause import and domestic prices of these goods to rise, would rather cause a decline in the profit margin of these firms. There has also been the argument of reduced product specifications/quality to allow firms maintain the domestic price of their goods in these markets when currencies depreciate. Based on the above empirical findings, the study recommends that emphasis has to be placed on reducing volatilityand moderating the speed of adjustments. Also, Government should pursue monetary policy as an instrument to influence import prices in order to attain complete exchange rate pass-through to domestic prices in Nigeria
Description
A THESIS SUBMITTED TO THE SCHOOL OF POSTGRADUATE STUDIES, AHMADU BELLO UNIVERSITY, ZARIA,
IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD OF MASTERS OF SCIENCE DEGREE IN ECONOMICS.
DEPARTMENT OF ECONOMICS
FACULTY OF SOCIAL SCIENCES,
AHMADU BELLO UNIVERSITY,
ZARIA, NIGERIA
Keywords
EXCHANGE RATE PASS-THROUGH,, DOMESTIC PRICES,, NIGERIA, (1980Q1-2009Q4).