A Vector Error Correction Model of Petrol Price Transmission and Sectoral Price Dynamics in Nasarawa State, Nigeria (2020–2025)

Abstract

This study examined petrol price transmission and sectoral price dynamics in Nasarawa State, Nigeria, within the period 2020–2025. The study used consumer price of premium motor spirit (PMS), commonly known as petrol, as the measure of petrol price, while the price indices for food prices (FPI), transport (TPI), and kerosene (KPI) were used to measure sectoral prices. The study employed the Vector Error Correction Model (VECM), supported by appropriate pre-estimation and post-estimation tests. The findings revealed the existence of long-run equilibrium relationship between the variables, while Error Correction Term (ECT) coefficients reveals that (ECT₁= -0.2186) carries a negative sign and is significant at 5% level, which indicates that 21.86% of any short-run shocks to long-run balance are adjusted within one period while (ECT₂= -0.2181) is negative and significant which implies that 21.81% of disequilibrium in the system is corrected. The result of FEVD for FPI tells that food prices was initially shown by its own shocks, and recorded 100% in the first period but the explanatory power of its own shocks declined to about 45.8% in period ten, while for TPI recorded 98.9% in the first period, while KPI recorded over 94% of its own variations by period ten. By this, KPI is relatively weaker compared to its impact on food and transport prices. The recommendations among others is that, government and private sectors should stipulate policies that promote domestic refining capacity and market stability to mitigate excessive price transmission effects across sectors.