Abstract:

This study investigates the exchange rate pass-through (ERPT) to inflation in Morocco, using a Vector Autoregression (VAR) model to analyze the dynamic relationship between exchange rate fluctuations and inflation rate. By examining annual data over the period 1988-2023, the study quantifies the extent to which changes in the nominal exchange rate influence inflationary pressures in the Moroccan economy. The findings reveal that the transmission of exchange rate shocks into inflation in Morocco is weak and moderate. Moreover, the evidence from the VAR model argues that the variation of exchange rate does not represent a significant factor that explain the fluctuation of domestic prices. This low pass-through reflects Morocco's monetary policy framework and trade composition, which mitigate the inflationary impact of exchange rate volatility. The study provides critical insights for policymakers in designing strategies to stabilize inflation while managing exchange rate dynamics, particularly in the context of an increasingly open and globalized economy.