Impact of Exchange Rate Volatility on Food Prices and Market Integration in Southeast Nigeria
This study investigates the impact of exchange rate volatility on food prices and market integration in Nigeria using time series data covering the period 2015–2025. Exchange rate instability has emerged as a major macroeconomic challenge in Nigeria, with significant implications for food price dynamics and household welfare. The study employs a Generalized Autoregressive Conditional Heteroskedasticity (GARCH) model to estimate exchange rate volatility, while the Johansen co-integration test and Vector Error Correction Model (VECM) are used to analyze market integration and price transmission mechanisms. Regression analysis is conducted to determine the effect of exchange rate volatility on food prices, controlling for inflation and production costs. The results reveal high persistence of exchange rate volatility in Nigeria. Exchange rate depreciation and volatility significantly increase food prices, confirming the presence of cost-push inflationary effects. Production costs and inflation are also found to be significant determinants of food price movements. Co-integration results indicate that regional food markets in Nigeria are integrated in the long run. However, exchange rate volatility significantly disrupts short-run price transmission and weakens market efficiency. The speed of adjustment to long-run equilibrium is moderate, suggesting partial correction of disequilibria over time. The study concludes that exchange rate volatility is a critical driver of food price instability and poses challenges to effective market integration. It recommends exchange rate stabilization policies, strengthening domestic agricultural input production, improved market infrastructure, and coordinated monetary and agricultural policy interventions to enhance food price stability and market efficiency in Nigeria.