Pass-through effects of global oil and food price shocks on Morocco's inflation: frequency causality analysis in VAR model

Morocco's central bank aims to move towards targeting inflation rate rather than exchange rate. Since the country is substantially dependent on commodity imports, the imported inflation constitutes a crucial concern of policymakers. This paper examines the impacts of world oil and food price shocks on Morocco's consumer prices during 1999-2019. To this end, the Breitung and Candelon (2006) frequency causality test combined with Toda and Yamamoto (1995) procedure is applied on quarterly data in VAR model. The findings reveal that oil and food price changes significantly affect domestic consumer prices. On one hand, the inflationary effects of food price shocks are found to be significant in the short and long-run, while oil price inflationary effect is more important in the long-run. On the other hand, consumer prices show asymmetric responses to commodity price changes, as positive shocks in food price have more inflationary effects than negative shocks, while the inverse pattern is shown for oil price shocks. Our findings may give useful information to policymakers and researchers in conducting monetary policy with inflation targets.