IMPACT OF EXCHANGE RATE VOLATILITY TRANSMISSION ON AGRICULTURAL COMMODITY PRICES IN NIGERIA

Abstract

This study examined the effects of exchange rate transmission on agricultural commodity prices in Nigeria by employing monthly time series data spanning from January 2016 to December 2024. Autoregressive Conditional Heteroskedasticity (ARCH) model was utilised to assess and predict time-varying volatility in exchange rates, revealing a significant degree of volatility. A series of volatility was generated and applied to an Autoregressive Distributed Lag (ARDL) model. ARDL bounds test indicated the presence of long term relationship within the model. It was found that exchange rate volatility exerted a negative and statistically significant influence on agricultural commodity price index, primarily transmitted via import prices, interest rates, and agricultural sector output in the long run. In the short term, the findings revealed that fluctuations in exchange rates and their transmission channels exhibited mixed effects on agricultural 
commodity prices, producing temporary gains or losses contingent on prevailing market conditions and governmental interventions. The research established that import prices and agricultural output act as pivotal mediators in the transmission process, while volatility in interest rates exacerbated the negative impact by constraining financial conditions for farmers. This underscores the necessity for a 
comprehensive macroeconomic framework that aligns exchange rate management with agricultural development policies to foster price stability, rural income enhancement, and sustainable food security in Nigeria.