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Title: A Dynamic Stochastic General Equilibrium (DSGE) Model of Exchange Rate Pass-Through to Domestic Inflation in Nigeria
Authors: Adebiyi, Micheal
Mordi, Charles N. O.
Keywords: DSGE Model
Exchange Rate Pass-through
Exchange Rate
Issue Date: 2012
Abstract: This study employs a Bayesian framework of DSGE model to estimate the pass-through effect of exchange rate to domestic inflation in Nigeria using a quarterly data for the period 1980 to 1998. The response of inflation rate to exchange rate shock is found to be positive and statistically significant in the short run. It shows a small and incomplete pass-through of exchange rate to domestic inflation in Nigeria with almost zero in quarter 1 (0.09), rose to 0.18 in quarter 2 and declined to 0.07 and 0.01 in quarters 3 and 4, respectively. This is lower than the findings obtained elsewhere by other authors. The low pass-through is attributed in part to the low, stable, and predictable inflation rate arising from the improved credibility of the policy environment.
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