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Exchange Rate Pass Through in a Small Open Economy: A case study of West African Monetary Zone

Author

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  • Rahman Olanrewaju Raji

Abstract

The study investigated the magnitude of exchange rate pass through to import prices and domestic prices (consumer price index) in WAMZ economy using quarterly time-series data between 2000 and 2010 with the aids of Vector autoregressive (VAR) modeling technique supported with Johansen co-integration approach cross country analysis comprising of Gambia, Ghana, Nigeria and Sierra-Leone.The study discovered that transmission of exchange rate to import prices is more when compared with consumer price in the zone while the contributions of exchange rate to import price are not less 13 percent at average in entire zone. Consumer price index was explained by exchange rate pass through with an average of 26 percent in the zone where the pass through to consumer price is less than two percent in Ghanaian economy. The Taylor (2000) hypothesis was observed in the study where Ghana and Nigeria are the outlier economies while Nigeria established a positive relationship between interest rate volatility and exchange rate pass through to import prices.

Suggested Citation

  • Rahman Olanrewaju Raji, 2013. "Exchange Rate Pass Through in a Small Open Economy: A case study of West African Monetary Zone," Journal of Global Economy, Research Centre for Social Sciences,Mumbai, India, vol. 9(4), pages 275-290, December.
    • Handle: RePEc:jge:journl:943
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    More about this item

    Keywords

    Exchange rates pass through; Consumer Price; Import Price; VAR;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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