Effects of Exchange Rate Depreciation on the General Price Level in Nigeria
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This study examined how exchange rate depreciation affects the overall price level in Nigeria. It utilized advanced econometric methods, including the Variance Inflation Factor, stationarity testing through the Augmented Dickey-Fuller technique, Johansen Cointegration, and the Error Correction Mechanism to analyze adjustment speeds. Additionally, tests for normality and model stability were carried out. The results indicate that a depreciating exchange rate significantly contributes to rising price levels. Similar effects were observed with imports and inflation, aligning with the study’s initial expectations. Consequently, the research suggests adopting a fixed exchange rate system to curb excessive volatility and recommends import substitution policies to tackle import-driven inflation, thereby helping to control the persistent rise in general prices.
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