Effects of Exchange Rate Depreciation on the General Price Level in Nigeria

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.