Exchange Rate Pass-Through to inflation and its implications for monetary policy conduct in Mauritania

This paper aims to estimate the degree of exchange rate pass-through to prices in the long term in Mauritania. To do this, a VECM model and impulse responses using Jordà's (2005) local projections were employed on a sample of monthly data covering the period from January 2015 to December 2023. Our results indicate a pass-through degree of 0.34 from the nominal effective exchange rate to overall inflation in Mauritania and a degree of 0.35 from the nominal effective exchange rate to food price inflation. By foreign currencies, the results also reveal that the effects of exchange rate pass-through (ERPT) are more pronounced with the ouguiya (MRU) exchange rate against the US dollar (USD) with a degree of 0.42, while the pass-through of the euro against the ouguiya is around 0.20. These findings suggest that exchange rate fluctuations remain a potentially significant source of inflation in the country. The policy implication is that monetary authorities must be vigilant about exchange rate fluctuations, take swift monetary policy measures, and focus on exchange interventions capable of reducing inflationary pressures from abroad.