Modelling Asymetries Among Consumer Price Index, Currency Price, Gross Domestic Output and Aggregate Import Demand in an Emerging Economy: The Case of Nigeria

Abstract

This study investigates to determine whether the sensitivity of import demand to negative partial sum processes of consumer price index, currency price and national income merely mirror the elasticities corresponding to positive partial sums of these same determinants in Nigeria. The test of the recently developed nonlinear autoregressive distributed lag model provided strong proof for asymmetry over the short- and long-run. From the long-run non-linear Autoregressive Distributed Lag estimates, import demand was found to be positve, inelastic and significant in response to positive shocks to Consumer Price Index, and positve, significant but elastic in response to negative shocks. The short-term response of import demand to Consumer Price Index is revealed to be biased towards negative shocks. Import demand is indicated to be more responsive to currency appreciation than depreciation. Further, we found higher coefficients of income elasticity of import demand associated with negative changes in Gross Domestic Product than with positive changes. In the light of these findings, we recommend macroeconomic and microeconomic policies that can drive down domestic inflation and improve internal competitiveness. JEL Codes: F4; F10; F13; F31