Assessing the impact of exchange rate fluctuations on rice import prices in five West African countries : an econometric approach using the Generalised Method of Moments (GMM)

Abstract

West Africa's heavy reliance on food imports, particularly rice, renders the region vulnerable to external market fluctuations, especially since these imports are primarily dollar-denominated. Currency depreciation exacerbates inflation, adversely affecting food security and purchasing power. This paper investigates how exchange rate fluctuations influence rice import prices and whether they impact monetary policy in major importers like Nigeria, Ghana, Senegal, Côte d'Ivoire, and Benin. Utilizing a monthly panel dataset from 2000 to 2024 and employing the System Generalised Method of Moments (GMM), the study reveals significant price persistence, with past rice prices heavily influencing current prices. Depreciation of exchange rates has a pronounced effect on import prices, indicating high sensitivity to currency fluctuations. Additionally, global food prices and trade tariffs contribute to rising costs, intensifying consumer vulnerability to international market shocks. The research further shows that exchange rate fluctuations significantly influence monetary policy decisions, particularly concerning interest rates. Central banks tend to tighten monetary policy in response to currency depreciation and rising food prices. However, the inertia in interest rate adjustments suggests a slow monetary policy transmission process in the Sub-Region. The study advocates for sound fiscal policies, effective foreign exchange interventions, and improved governance to mitigate food import inflation. Additionally, future research may extend to wheat, maize, or use an importable stable index to test whether past-through elasticities differ by cereal. Similarly, for the household’s welfare link, coupling the price pass-through with LSMS-type consumption data could help estimate real-income effects on poor households versus non-poor households.