The pass-through effect of exchange rate in the ECOWAS: Empirical evidence from the ARDL panel model

Abstract This paper investigates the effect of the exchange rate, in relation to the type of exchange rate regime, on inflation rates in ECOWAS. To this end, we assess the impact of the exchange rate on inflation (ERPT) by distinguishing between countries with a fixed exchange rate regime (WAEMU and Cabo Verde) and countries with a f lexible exchange rate regime (WAMZ). Applying the ARDL panel model, the results obtained from estimating the ERPT show an incomplete pass-through effect for the ECOWAS countries, the WAEMU and Cabo-Verde countries, and for the WAMZ countries. For fixed exchange rate countries, the exchange rate pass-through is positive and significant in the short term. In fact, a real appreciation of the exchange rate of 1% leads to an increase in the price level in the WAEMU and Cape Verde of 0.20% in the short term and 0.16% in the long term, which is not significant. For countries with a flexible exchange rate, the significant effect of the pass-through is noted in the short and long term. A 1% loss of competitiveness leads to inflation of 0.13% in the short term and disinflation of 0.8% in the long term. JEL classification: F31; E31; F15; C23; N17