The continuous adoption of trade openness policies and floating exchange rates regime by developing countries exposed them to speculative pressures. It makes exchange rate shocks easily transferred to domestic consumer prices. That makes tremendous impacts on the domestic consumer price inflation. This paper thus examines the response of domestic consumer prices to exchange rate changes otherwise known as ‘Exchange rate pass-through’. The paper uses vector error correction (VECM) model to examine the relationship. A quarterly time series data for a period ranging from 1986Q1 to 2013Q4 for Nigeria was used. The study found a substantial but incomplete and slow pass-through of exchange rate changes to domestic prices.
Contribution/ Originality
This study contributes in the existing literature by estimating the ERPT using Nigerian data as there are very few studies on ERPT for developing countries and particularly Nigeria. This study uses VECM model against the SVAR model used by other studies.
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This study received no specific financial support.
Competing Interests:
The author declares that there are no conflicts of interests regarding the publication of this paper.