Exchange rate and inflation: is there a relationship in Nigeria

Abstract

This paper attempts to examine the link between exchange rate and domestic price level in Nigeria. Employing the VAR technique, the study used monthly series of inter-bank rate, world export prices, real gross domestic product, oil prices and consumer price index from 2000MI to 2015MI. The results from the study show that exchange rate pass-through to price level is high. a shock to exchange rate (depreciation) would increase domestic price by 0.72 per cent in the first month. The effect rose to 0.82, 0.85 and 0.86 per cent in month 2,4 and 6, respectively, before it began to fall. By the sixth month, it stood at around 0.84 per cent, on the average. Also the results of the VAR model and exchange rate pass-through coefficients indicate that pass-through to price level in Nigeria is partial or incomplete.