EXCHANGE RATE PASS-THROUGH, MONETARY POLICY, AND PRICE STABILITY IN NIGERIA

📄 Project Abstract

The need for appropriate adjustment mechanism to structural imbalances in many developed countries, especially after the Great Depression of 1929-1933, culminated in extensive researches on exchange rate pass-through (ERPT) with the primary objective of determining a nominal anchor for inflation and inflation expectations. It is widely believed that an understanding of the impact of exchange rate movement on prices would help to gauge the appropriate monetary policy response to currency movements. The increased openness of most developed economies and the incidence of large fluctuations in nominal exchange rates have led to a need for a better understanding of the determinants of the transmission of exchange rate changes into import prices. Exchange rate pass-through refers to the change in domestic prices that can be attributed to a prior change in the nominal exchange rate. In other words, it is the effect of a change in the exchange rate on domestic prices. Balance of payment postul...