Asymmetric Exchange Rate Pass-Through to Consumer Prices in Afghanistan

Monthly Evidence from a NARDL Model, 2007–2025

Abstract

This study examines asymmetric exchange rate pass-through to consumer prices in Afghanistan over the period 2007–2025. It aims to measure and compare the short-run and long-run effects of depreciation and appreciation of the Afghan afghani against the U.S. dollar on the Consumer Price Index (CPI). The central research question is whether depreciation and appreciation of the afghani have exerted asymmetric effects on consumer prices in Afghanistan over the short and long run. The analysis employs 228 monthly observations and a nonlinear autoregressive distributed lag (NARDL) model. The exchange rate is expressed as Afghanis per U.S. dollar (AFN per USD), and its positive and negative changes are decomposed separately. The model also controls for the global food price index, oil prices, a post-August 2021 dummy variable, and seasonal effects. The Pesaran–Shin–Smith bounds test confirms the existence of a long-run relationship. In the baseline model, a 1% depreciation of the afghani is associated with an approximately 0.72% increase in consumer prices in the long run, whereas a 1% appreciation is associated with an approximately 0.37% decrease. The Wald test indicates that the difference between these effects is statistically significant. The direction of this long-run asymmetry is preserved across all major specifications; however, the difference is not statistically significant at the 5% level in the linear-trend specification or in the post-April 2015 subsample. Evidence of short-run asymmetry is less consistent and remains sensitive to the definition of the exchange rate series, the sample period, and the variance estimator. The global food price index also has a positive and statistically significant long-run effect on consumer prices. These findings underscore the importance of limiting excessive exchange rate volatility and addressing Afghanistan’s vulnerability to global food price shocks.