Acta Universitatis Danubius. Œconomica, Vol 15, No 7 (2019)

Abstract

Using monthly dataset ranging from January 1980 to December 2016, we explore the case of oil-producing economies namely, Nigeria to evaluate the potential vulnerability of domestic prices to exchange rate movements. Mainly, we utilise the ARDL Bound cointegration testing approach as well the Toda-Yamamoto VAR to determine: (i) the short-run and long-run dynamic of the pass-through and (ii) the magnitude and the direction of the pass-through. Empirically, we find evidence of long-run relationship among exchange rate movement, import price and chain of other prices under consideration. Supporting this evidence is the theoretical appropriateness and significance of the error correction coefficient. Specifically, we find that on average, import prices have the potential of reverting to equilibrium state by 31% of any disequilibrium caused by previous months’ shock.  However, our finding of no significant EPRT nonetheless the short or long run situations seems puzzled, particularly for a volatile economy such as Nigeria. This may be because exchange rate regimes in the country since independence hovered around the pegged regime and manage float regime. The study further explores TYDL VAR Granger causality test and shows that exchange rate pass-through to import prices is as high as 7%, but mainly when the causality runs from export prices to import and from exchange rate to export prices.

JEL Codes: E3; E4; E6; F3; F4