Exchange Rate Pass-Through to inflation in Morocco

Abstract

The aim of this paper is to dissect the Pass-Through of exchange rate fluctuations on the consumer price index (CPI) in Morocco, in other words, to analyze the response of national prices to a variation in the exchange rate over the period 1980-2022, and at the same time to enrich the empirical literature already produced via another modeling trial carried out by ourselves. To this end, we adopt an econometric model based on the structural VAR model with four variables: nominal effective exchange rate (NEER), consumer price index (CPI), money supply (MM), oil price (BRENT) and output gap. The transmission of changes in the exchange rate to the national economy would be incomplete, an observation which can only facilitate the transition phase towards a more flexible exchange rate regime, while preserving Bank Al Maghrib's objective of price stability.