Abstract: This study examines, the pass through of exchange rate to both domestic price level and output in Nigeria using a VAR model that incorporates a distribution chain with the Nigerian real annual data (oil price, exchange rate, money supply, output and CPI) from 1970-2006. The study, though establishes long run relationships among the variables employed, finds no evidence of any exchange rate volatility induced inflation and growth (both in the short and long-run) in the period under consideration. On the other hand, much of the variability in the domestic price level, apart from its own shock, has been explained significantly by both output and money supply shocks. Hence, the policy implication here is that the volatility of exchange rate has no significant effects on domestic inflation and output in Nigeria. Therefore, domestic policies (monetary or fiscal) could play a significant role in controlling domestic inflation and output variability in Nigeria.