DOES GDP MATTER WHEN ASSESSING EXCHANGE RATE PASS-THROUGH TO INFLATION AND AGGREGATE IMPORT? EVIDENCE FROM ECOWAS REGION

Abstract

The study examines how aggregate import and inflation dynamics are affected by exchange rate pass-through in ECOWAS nations. The study's theoretical underpinnings are based on buying power parity, which holds that since imports are valued in US dollars, abrupt changes in import prices will impact the importing countries' currency exchange rates. The analysis made use of panel data from 2006 to 2023 from the four most populous West African nations: Nigeria, Ghana, Côte d'Ivoire, and Niger Republic. This study makes use of Non-Linear Autoregressive Distributed Lag (NARDL). The results of this study show that the exchange rate and total imports have an unequal pass-through. An uneven pass-through between inflation and exchange was also discovered by the study. An asymmetric pass-through between inflation and exchange was also discovered by the study. The study concluded that to properly examine exchange rate pass-through, GDP must be included as a distinct variable. To lower the level of total imports, the report advises policymakers in ECOWAS economies to develop import substitution policies. In order to lower the region's unfavourable inflation rate, the study also suggests that measures to lower inflation be implemented such as a reduction in government spending in administration and firm monetary policies.