Exchange Rate Pass-through in Countries of the Proposed West African Monetary Zone (WAMZ)
This paper examines the extent and speed of exchange rate pass-through to inflation in countries of the proposed West African monetary zone. Using monthly data starting from 2000:01 - the year the monetary zone was proposed ¨C to 2011:12 and utilising impulse response and variance decomposition functions within a vector autoregressive framework, the paper finds that exchange rate dynamics have a direct impact on headline inflation in these countries. The results show varying degrees of the extent and speed of exchange rate pass-through to headline inflation that policy makers need to mindful of in the proposed monetary union. The extent of pass-through is highest in Ghana and lowest in Nigeria. Also, except for Ghana where pass-through persisted, it died down in 12 months in the other member countries. Variance decomposition shows that the relative importance of exchange rate dynamics in explaining domestic prices is higher for Guinea and Ghana and those prices are largely driven by their dynamics among members of the proposed monetary zone.
Volume (Year): 3 (2013)
Issue (Month): (February)
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