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Erscheinungsjahr: 
2025
Schriftenreihe/Nr.: 
WAMI Occasional Paper Series No. 36
Verlag: 
West African Monetary Institute (WAMI), Accra
Zusammenfassung: 
This study provides country-specific empirical evidence on the optimal exchange rate passthrough to inflation in the WAMZ for the 1980-2023 period. Although there is a large empirical literature on this subject, previous studies have primarily focused on linear approaches to determining optimal exchange rate pass-through, where inflation is presumed to react similarly to both small and large changes in the exchange rates. This paper contributes to the policy debate by endogenously determining the individual WAMZ countries' threshold effects of exchange rate pass-through to inflation at different episodes. The results from the study show optimal nominal exchange rate pass-through to inflation of 15.5 percent for The Gambia, 23.8 percent for Ghana, 18.3 percent for Guinea, 11.2 percent for Liberia, 18.5 percent for Nigeria, and 19.6 percent for Sierra Leone. Moreover, in most WAMZ countries, the nominal exchange rate pass-through is negative and statistically insignificant during periods of currency appreciation (lower regime), whereas it becomes positive and significant during episodes of currency depreciation (upper regime), indicating a stronger inflationary impact when currencies weaken. This study provides strong empirical evidence of incomplete and asymmetric pass-through of the exchange rate to inflation, as ERPT is high during currency depreciation and low during appreciation. Hence, ignoring asymmetric threshold effects of exchange rate movements on inflation may lead to inappropriate policy prescriptions and inferences. Notably, this result aligns with the ECOWAS exchange rate variability convergence criteria (±10 percent). Thus, monetary authorities within the zone are encouraged to continue pursuing appropriate monetary policy measures that will lower exchange rate variability below the desirable threshold levels, thereby helping to control inflation.
Schlagwörter: 
Exchange rate pass-through
Inflation
Smooth transition regression
Asymmetry
West Africa
JEL: 
C22
F31
F41
Dokumentart: 
Research Report

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