Investigating the relationship between exchange rate and food prices in the West African Economic and Monetary Union states

Food insecurity constitutes a significant obstacle to growth in developing nations. These economies are frequently exposed to acute poverty during internal and foreign crises. Recent events, such as the COVID-19 pandemic and Russia's invasion of Ukraine, have stopped the world economy, with severe effects on developing economies. Thus, the West African Economic and Monetary Union (WAEMU) is experiencing a food crisis, exacerbated by the local currency depreciation as opposed to the trading currency, the US dollar. This thesis is intended to examine the existing transmission effects of the CFA movements on food prices in the WAEMU nations. The study adopts an innovative approach that enables us to investigate the relationship between the depreciation (appreciation) of the CFA franc with that of food prices in the eight WAEMU countries from January 2004 to December 2022. The NARDL results reveal an asymmetric and nonlinear connection between the exchange rate movements and food prices. Appreciations and depreciations affect food prices differently in all WAEMU countries. An appreciation of the exchange rate in the short term has no substantial effect on food costs; however, the local currency depreciation influence positively food prices in Benin, Burkina Faso, Guinea Bissau, Mali, Niger, and Togo. A depreciation of the CFA franc in the long term has a positive impact on all CFA zone nations. In contrast, the CFA franc appreciation has a negative effect on food prices in Benin, Côte d'Ivoire, and Niger. Therefore, the policy recommendation is to regard the asymmetrical relationship in improving the monetary policy of the union, adopt policies that facilitate the financing of food processing and storage firms, and promote and support competitive local products in the common market.