The analysis of the link between the exchange rate and inflation: Evidence from a quantile regression approach

Abstract

Given the impact of price hikes on the global economy and developing countries, this paper aims to determine the factors influencing overall food inflation in Morocco. We use quarterly data from The Central Bank of Morocco (BAM) and the Food and Agriculture Organization of the United Nations (FAO) to answer this question via quantile regression analysis. Our results suggest that the exchange rate exerts positive and statistically significant effects on overall food inflation. We also find that oil prices negatively affect food inflation, while gross domestic product and monetary policy do not affect overall food inflation. Ultimately, our results show that inflation in Morocco is predominantly imported.

Keywords: inflation, food inflation, exchange rate, quantile regression

JEL Classification: E31