Heteroscedasticity

Physics

Error correction model

Mid price

Money supply

Mathematics

Consumer price index (South Africa)

Statistics

Cointegration

Monetary policy

Autoregressive model

Wholesale price index

Econometrics

Economics

Inflation (cosmology)

Autoregressive conditional heteroskedasticity

Exchange rate

Broad money

Effective exchange rate

Theoretical physics

Proxy (statistics)

Monetary economics

Price level

Volatility (finance)

Journal of Contemporary Research in Business Economics and Finance

This study examined the effect of exchange rate volatility on inflation in Nigeria using annual time series data covering the period 1986-2019. To achieve this objective, the study employed the generalized autoregressive conditional heteroskedasticity (GARCH) and vector error correction model (VECM) to ascertain the long-run impact of exchange rate volatility on inflation . The study used consumer price index as a proxy for inflation being the dependent variable while nominal exchange rate (NER), money supply (MS) import (IMP) and export (EPT) were used as the independent variables. The results of stationarity test indicated that the variables have mixed order of integration and bounds test for co-integration confirmed the existence of a long-run relationship among the variables. Findings showed that money supply (MS) and nominal exchange rate(NER) had positive and significant effect on consumer price index, meaning that inflation in Nigeria is caused by exchange rate fluctuations as well as increase in money supply. Based on the findings, the study recommended that growth of money supply should be controlled by the central bank in order to reduce inflation to the barest minimum.

Impact of Exchange Rate Volatility on Inflation in Nigeria