Exchange Rate and Inflation Dynamics: Disaggregate Consumer Prices

Publication Date: 19/08/2018


Author(s): Umar Bala.

Volume/Issue: Volume 1 , Issue 1 (2018)



Abstract:

This empirical research intended to examine the interconnection between exchange rate and disaggregate consumer prices in Nigeria. The study used annual data within the period from 1976 to 2015. Autoregressive Distributed Lag (ARDL) technique was used in the process of estimating the empirical models. The ARDL bound test discloses that there is a long-run association among the variables in the models (oil price, exchange rate and disaggregate consumer prices). The error correction term confirms the results shown significant negative sign at 5 percent. The long-run results indicate that exchange rate is the significant factor influencing consumer prices in all the disaggregate models. The results were also estimated for robustness check with the FMOLS and DOLS estimators. The importance of this finding it will serve as an alert to the policymakers that exchange rate depreciation is the main factor influencing consumer prices positively in Nigeria. The Central Bank of Nigeria to achieve the targeted inflation has to control the foreign exchange markets as a prerequisite.



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