Document Type

Occasional Paper

Publication Title

A Dynamic Stochastic General Equilibium (DSGE) Model of Exchange Rate Pass-Through To Domestic Prices In Nigeria


This paper employed a Bayesian framework of DSGE model to estimate the pass-through effect of exchange rate to domestic inflation in Nigeria, using quarterly data for the period 1990 to 2011. The response of inflation rate to exchange rate shocks was found to be positive and statistically significant in the short-run. The pass-through was small and incomplete with almost zero in quarter 1 (0.09), rose to 0.18 in quarter 2 and declined to 0.07 and 0.01 in quarters 3 and 4, respectively. These findings were lower than those obtained elsewhere by other authors. The low pass-through reported in this study was attributed, in part, to the low, stable, and predictable inflation rate arising from the improved credibility of monetary policy environment.

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