{
  "title": "Nigeria’s Shift to a Floating Regime: Interest Rate and Exchange Rate Pass-Through and Policy Effectiveness",
  "publication": "Selected Issues Papers, June 17, 2026",
  "sourceUrl": "https://www.imf.org/en/publications/selected-issues-papers/issues/2026/06/17/nigerias-shift-to-a-floating-regime-interest-rate-and-exchange-rate-pass-through-and-policy-577017",
  "canonical": "https://www.imf.org/en/publications/selected-issues-papers/issues/2026/06/17/nigerias-shift-to-a-floating-regime-interest-rate-and-exchange-rate-pass-through-and-policy-577017",
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  "summary": "In June 2023, Nigeria transitioned from a multi-window, managed exchange rate system to a floating regime. This paper examines how the regime change altered the interest rate and exchange rate pass-through (ERPT) using econometrics cointegration methods and a Bayesian VAR estimated over 2007–2025.",
  "sections": [
    {
      "heading": "Regime change and research scope",
      "content": "- In June 2023, Nigeria transitioned from a multi-window, managed exchange rate system to a floating regime.\n- This paper examines how the regime change altered interest rate and exchange rate pass-through (ERPT) using econometrics cointegration methods and a Bayesian VAR estimated over 2007–2025.\n- Key subjects: Central bank policy rate, Exchange rate arrangements, Exchange rate pass-through, Exchange rates, Financial services, Foreign exchange."
    },
    {
      "heading": "Methods and analytical approach",
      "content": "- Econometrics cointegration methods.\n- Bayesian VAR estimated over 2007–2025.\n- Keywords guiding analysis: Bayesian VAR, capital flows, Central bank policy rate, Exchange rate arrangements, Exchange rate pass-through, exchange rate regime, Exchange rates, fiscal dominance, inflation, monetary policy, monetary transmission, Nigeria, oil shocks."
    },
    {
      "heading": "Main findings on ERPT and interest rate transmission",
      "content": "- ERPT is highly shock-dependent.\n- Under the pre-unification regime:\n  - Pass-through was muted or negative.\n  - This reflected policy insulation through reserve management and capital controls.\n- Following unification:\n  - ERPT becomes positive and economically meaningful, particularly for external financial shocks such as US monetary tightening, indicating that the exchange rate channel has been reactivated.\n  - Interest rate transmission has also strengthened post-unification, although key market rates are not yet firmly anchored to the MPR.\n- Overall assessment:\n  - The unification marks a shift from a framework in which exchange rate rigidity suppressed the domestic price impact of external shocks that transmit through the exchange rate — at the cost of mounting misalignment and parallel market distortions — to one in which such shocks transmit more transparently to domestic prices through a market-determined rate."
    },
    {
      "heading": "Policy implications and effectiveness conditions",
      "content": "- The effectiveness of the new framework depends critically on:\n  - Shock-specific ERPT dynamics.\n  - The completeness of interest rate transmission.\n  - The timeliness and credibility of CBN policy responses.\n\n---\n\n Content in this bundle\n\n- Sipea2026045\n  - Sipea2026045 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Sipea2026045 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/selected-issues-papers/issues/2026/06/17/nigerias-shift-to-a-floating-regime-interest-rate-and-exchange-rate-pass-through-and-policy-577017"
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    "Authors: Cecilia Melo Fernandes, Chris Stumphius",
    "Published: June 17, 2026",
    "Series: Selected Issues Papers",
    "DOI: https://doi.org/10.5089/9798229051170.018",
    "In June 2023, Nigeria transitioned from a multi-window, managed exchange rate system to a floating regime.",
    "This paper examines how the regime change altered interest rate and exchange rate pass-through (ERPT) using econometrics cointegration methods and a Bayesian VAR estimated over 2007–2025.",
    "Key subjects: Central bank policy rate, Exchange rate arrangements, Exchange rate pass-through, Exchange rates, Financial services, Foreign exchange.",
    "Econometrics cointegration methods.",
    "Bayesian VAR estimated over 2007–2025.",
    "Keywords guiding analysis: Bayesian VAR, capital flows, Central bank policy rate, Exchange rate arrangements, Exchange rate pass-through, exchange rate regime, Exchange rates, fiscal dominance, inflation, monetary policy, monetary transmission, Nigeria, oil shocks.",
    "ERPT is highly shock-dependent.",
    "Under the pre-unification regime:",
    "Following unification:",
    "Overall assessment:",
    "The effectiveness of the new framework depends critically on:",
    "**Sipea2026045**"
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