Exchange Rate Pass-Through in Nigeria

The paper seeks to determine the effect of exchange rate changes on consumer prices in Nigeria using recursive vector autoregression (VAR) model. It uses data from first quarter 2000 to fourth quarter 2013. The results of the investigation show that exchange rate fluctuation has a positive and insignificant effect on consumer prices and the increase in consumer prices are mainly due to its own shocks and the increase in money supply in the long run. A stable monetary policy with a low inflationary environment will lessen the pressure of exchange rate changes on consumer prices. So, the Central Bank of Nigeria should be less concern with the inflation impact of exchange rate shocks and focus fully on other objectives such as growth and export competitiveness in designing exchange rate policy.