Estimation Of Exchange Rate Elasticity And Its Pass-Through Effect On Producer Price Index In Nigeria

• Semirah Ngozi Hanafi

  Department of Economics, Nigerian Defence Academy, Kaduna

  Author

• Egwaikhide Christian Imoudu

  Department of Economics, Nigerian Defence Academy, Kaduna

  Author

• Yakubu Alfa

  Department of Economics, Nigerian Defence Academy, Kaduna

  Author

• Major Auwal Abubakar Muhammad

  Author

This study examines the exchange rate elasticity and its pass-through effect on producer price index in Nigeria for the period 2010-2024. Used monthly data covering the period of January 2010-December 2025. Data for the study were obtained from the Central Bank of Nigeria’s Statistical Bulletin (2006). The data were analyzed using the Polynomial Distributed Lag (PDL) model and pass-through elasticity model. Findings form PDL reveal that money supply has a positive and statistically significant effect on producer prices, indicating that increases in liquidity contribute to rising production costs and producer price inflation. Also, the prime lending rate exerts a positive and statistically significant influence on producer prices, suggesting that higher borrowing costs are transmitted to firms through increased production costs. Results of exchange rate pass-through shows that while the contemporaneous effect of exchange rate on PPI is weak, the passthrough becomes stronger between the fifth and tenth lags, implying that exchange rate shocks are gradually transmitted to domestic producer prices. The cumulative lag coefficient (0.00552) is positive and statistically significant, confirming the existence of a long-run exchange rate pass-through to producer prices. Based on the findings of this study, it is recommended that monetary and fiscal authorities should pursue policies that reduce excessive exchange rate volatility through improved foreign exchange management, increased export earnings, and stronger external reserves in Nigeria. 

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