Timing Matters: Nonlinear Exchange Rate Pass-Through and Inflation Dynamics in the Democratic Republic of Congo

This paper investigates the exchange rate pass-through to inflation in the Democratic Republic of Congo within a nonlinear framework, using a Nonlinear Autoregressive Distributed Lag model. In a context marked by a recent transition toward an appreciation of the Congolese franc, the findings reveal the existence of a long-run relationship, as well as a significant asymmetry in the pass-through mechanism. Depreciations are transmitted rapidly and significantly to inflation, whereas appreciations generate slower and more delayed disinflationary effects. This asymmetry is primarily expressed in terms of timing rather than magnitude, highlighting an asymmetric price adjustment dynamic. The results also indicate a relatively high speed of adjustment toward the long-run equilibrium, although the structural influence of the exchange rate remains partial, confirming the multicausal nature of the inflationary process. From a monetary policy perspective, these findings suggest that exchange rate stabilization does not guarantee immediate disinflation and underscore the importance of managing expectations, particularly through the credibility and communication of the Central Bank of Congo. By providing an intertemporal perspective on exchange rate pass-through, this paper contributes to the literature by identifying a “timing rather than magnitude” asymmetry, and offers both analytical and operational implications for monetary policy conduct in emerging economies characterized by structural rigidities and high levels of dollarization.