Distributional Influence of Exchange Rate Pass-Through on Inflation in Nigeria: Evidence from Quantile Regression Model

Abstract

The study investigated the distributional influence of exchange rate pass-through (ERPT) on inflation rate in Nigeria. Monthly data ranging from January 1999 to December 2021 which was extracted from the Central Bank of Nigeria statistical bulletin was used. The unique contribution of the study lies on the fact that it utilizes quantile regression model (QRM) to ascertain the ERPT to inflation at diverse quantiles. The results show that ERPT distributionally influences inflation in Nigeria positively and significantly at diverse quantiles (quantiles 10^th, 25^th. 50^th, 75^th and 90^th). It demonstrates that ERPT to inflation is size-based and it is sensitive to the duration of financial market turmoil. The study recommends a proactive policy response towards exchange rate management as well as a robust macroeconomic policy regulation. Furthermore, to tackle food inflation, Government should strengthen its agricultural and industrial policies to boost domestic production and hence reduce overreliance on imported goods.

Keywords: Distributional influence, ERPT, Quantile regression, Inflation

DOI: 10.7176/EJBM/16-3-05

Publication date: April 30^th 2024