Relative price effects of exchange rate depreciation in Nigeria under fixed and fixed/flexible mark-up pricing regimes

A Model to Measure the Effects of Exchange Rate Variations on Prices

“…The effect of exchange rate depreciation under different pricing regimes in Nigeria was measured by Ajakaiye and Ojowu (1994). For this purpose, an extended slp model was also developed:…”

“…Irrespective of taxes on value-added or sale tax, t has a fixed value in the price index. Then the level of tax revenue in per unit of commodities is independent of exchange rate shocks in the model proposed by Ajakaiye and Ojowu (1994). In contrast, in the model proposed by Levy (1985), the tax revenue in per unit of commodities is adjusted with respect to the exchange rate shock through b (equation [3]).…”

“…According to the review performed, the first attempt was carried out by Levy (1985) employing a price model based on the Standard Leontief Price (slp) model to analyse the effects of exogenous changes in exchange rates on relative prices and aggregate price levels. The study by Ajakaiye and Ojowu (1994) The contribution of the proposed model to the literature can be seen in its advantages in comparison with previous ones. More explicitly, its main advantage is that it divides imports into two groups with different effects on prices in a domestic economy, allowing the researcher to consider the effects of exchange rate variations into final goods as well as on intermediate inputs.…”