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International Journal of Inspiration, Resilience & Youth Economy
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Volumes > Vol. 1 > No. 2

 
   

Inflation Target, Exchange Rate Pass -Through in Nigeria: Evidence from Time Series

PP: 135-148
doi:10.18576/ijye/010203
Author(s)
Umar Musa,
Abstract
The influence of external shocks and strong correlations between exchange rates and price necessitate the need for all-encompassing study on exchange rates pass – through and its implication on inflation target in Nigeria. The research aimed to investigate the direct and indirect effect of exchange of exchange rates pass through in for the periods of 1985 to 2016, using vector error correction model (VECM). Our data shows the presence of unit root at level but after taking first difference it become stationary using ADF and PP statics, however, by employing Johansen test of co integration we found variables are co integrated, hence having long run relationship. Similarly our findings show that error correction term (ECM) is correctly sign and significant approximately 63 percent is corrected to converge towards equilibrium within first year. We further employed impulse response function and variance decomposition to examine the degree of pass-through on price in Nigeria and evidence from findings reveal that pass through on import price is greater than that on consumer prices consistence with the previous finding. We have identify the influence of exchange rate is modest and incomplete and has serious implication with the regard to formulation and implementations of monetary authorities in Nigeria. It was therefore recommended due to continues integration in the world market, it become necessary to control imported inflation since effect on consumer price in the Nigerian economy is apparent. This will reduce cost of production and stabilize domestic price thereby increase profit margin, employment and then improving standard of living.

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